Equity release was dominated by a few key players throughout the 1980s and 1990s, but some say that Prudential’s launch into the market in 2005 shook up traditional views of how the industry was perceived.
Prudential launched its Property Value Release Plan in October 2005, with constant streams of research as to the state of the ‘retirement’ market. Ali Crossley, director of lifetime mortgages at the Prudential, was charged with introducing the Property Value Release Plan, which had a high degree of flexibility, with an option of an increasing loan-to-value. Although the product was not unique – there were several lenders who already had a lifetime mortgage product with a drawdown facility – it was certainly competitive, and more importantly, it was another recognisable life provider on the equity release scene – something which was welcomed by the industry, particularly Safe Home Income Plans (SHIP).
But Crossley’s entry into the equity release market, and that of financial services, was perhaps not where she envisaged herself to be. She says: “It was by accident that I ended up in financial services. I was in skincare and health for many years. Once I graduated, I went to an advertising agency, spent a few years in that world and went into skincare, and then worked with Gillette on brand management.” She “reluctantly” joined Barclays Financial Services, which was determined it wanted Crossley for her experience in customer marketing, but was equally interested that she had not done any financial marketing. After three months, she realised that she had warmed to the idea of financial services and has spent the last 15 years in the sector. She was recruited into Barclay Call, the telephone banking operation that was being set up in direct competition with First Direct, which was first to the market in telephone banking. The role was hugely challenging and rewarding, she says.
Crossley joined the Prudential five years ago – initially as a consultant running part of the marketing team – and then she was asked to stay permanently. She ran her own marketing consultancy business for seven years prior to the offer, and so as a result of having Prudential as a client, it was another brave decision to join the life provider as a permanent employee. As its marketing communications director, she was immediately responsible for intermediary and consumer business, online business, direct marketing – in fact, the whole bag. But she admits: “It was a very frenetic role. We spent a lot of money on communication and I loved the experience.”
Before joining Prudential, she worked as a consultant for Norwich Union’s lifetime mortgage programme, so it was natural for her to move to the Prudential’s lifetime mortgage department. After looking after the communications side and being a spokesman for the Pru’s equity release product, she became business director in May 2006. “It was very different from my previous role, as I was responsible for the profit and loss sheet for the retirement income business, which effectively means lifetime mortgages and new product development.”
The launch of the drawdown product was a big deal for the market, something Crossley claims was “revolutionary”. She says: “The Prudential is known for being innovative and it is important that we maintain that position. Drawdown is really important for us because it is so important for the end customer. It gives the customer absolute flexibility, and minimises the effect of the core compound interest. Basically, the position we take is – do not take more money than you need on day one. We are very hot on that. We ask customers what they want the money for and to take only as much money as they really need.”
The product has not changed significantly externally, but the processes internally have been sharpened, according to Crossley. But the Prudential is now working on some enhancements to the product, particularly in terms of improving the flexibility for the customer. She adds: “We have the most flexible drawdown product in the market. Customers can come back as often as they like, with no boundaries on when they can ask to review the amount, providing they do not go over the ceiling in which they are borrowing. In the future, there will be even more flexibility. At the moment there is minimum drawdown of £5,000 – we are looking at that. More flexibility is key.”
Pressing concerns
Prudential conducts regular surveys among its intermediary partners. Its latest annual Adviser Opportunity Survey shows that the majority of advisers (54%) say retirement planning is top of their clients’ most pressing financial concerns. In particular, many clients have no idea where their retirement income is likely to come from. Nearly a quarter (24%) tipped equity release products to increase in popularity, a rise of 11% from the year before. Interestingly, its survey also found that the top feature of equity release products for intermediaries is they are ‘easy to understand’, while Crossley’s buzz word ‘flexibility’ came in second place.
In addition to the surveys, Crossley makes a point of speaking to two equity release end-customers a week, and she says the results are always interesting. What commonly comes out of these conversations is that customers and intermediaries want a product they can understand, as shown in the results above. She says: “This is a complicated area, and it is absolutely incumbent on the key provider to have literature that help the customer understand what they are buying, what the features and functions are. It is important to have very clear literature and absolute transparency. For instance, one step that we take is that we send customers a statement every six months.”
Issuing statements is only necessary every year, but in terms of treating customers fairly, the six-month statement is an important step to embodying the principle. “Customers want to be in control,” she adds. “It matters to me to speak to customers. Besides anything else, you get the passion and it is a very emotional conversation. We have changed people’s lives. For some people, equity release is about need, and that represents about 60% of people I speak to. And about 40% in my experience are the ones who are enhancing their lifestyle with the product. I tend to speak to people who are more in the ‘need’ than the ‘want’. People say thank you to me – and you do not often get that in financial services.”
Part of the mix
Lord Turner, in his second pensions report for the Pensions Commission in 2005, chose to ignore equity release, despite the fact that many, like Crossley, believe that it will be a significant product for the baby boomers entering retirement in the next decade. Crossley says: “I think equity release is part of the mix and we are talking to the Government. I suspect that equity release will form part of a portfolio for retirement provision – a bit of income coming from equity release, a bit of income coming from a pension. There should be no stigma attached to taking that route because that is the reality for lots of people.” But if equity release is to become part of retirement provision, there have to be the intermediaries to advise on the product.
“There are not enough qualified advisers in equity release. A lot have been resistant to the equity release market, a lot of them have some concerns because of reports like that of the consumers’ associations last year. So, it is not a quick decision for an adviser to go into the market. Those that have gone into the market have found it very rewarding. Prudential believes that at the first quarter of the year, there were about 250 qualified equity release advisers, but there were some reports that suggest there are nearer 900.” The massive disparity between the two figures indicates that there are problems in identifying qualified advisers in the market, which of course is changing with qualification action from the various educational institutes and SHIP. Prudential launched its face-to-face team to fill the gap. SHIP has an ongoing role to play in this, according to Crossley, even after home reversion regulation. In particular, she believes that the body can help with the market’s image.
Prudential, and Crossley in particular, have spoken out against home reversion. Crossley was most vocal against Norwich Union, her ex-client, when it launched its home reversion product. Prudential still has a no plans to launch a home reversion product and Crossley does not see these plans changing in the near future. She says: “If people were to tell us that home reversion was what they wanted, of course we would review our policy. If there was a big enough market then we would go into it, but that is not our experience. It is not a side of the market that is growing.” She admits that the size of the market may change with regulation in April, but she believes there is still the emotive issue of giving up one’s home. “That will prevent any significant growth in the market,” she adds.
Healthy competition
Crossley denies that there was a war of words between Norwich Union and Prudential, and says reports were exaggerated as to how many people were brought over from Norwich Union to her team – “there really were only a couple of people brought over. And I did not in any way rubbish what Norwich Union was doing by entering the reversion market. I was asked about home reversion and I said it was not something we would do. And that was not a difficult answer.” There is certainly healthy competition between the two companies. Prudential’s annual results suggest that it now has 8% of the total lifetime market, which is quite an achievement for its short time in the sector. Although Crossley would not comment on it, Norwich Union’s lifetime mortgage share is down. “Prudential has a very resonant brand in the retirement community,” Crossley explains. “Huge credibility, and everyone remembers the ‘man from the Pru’. If you look at SHIP figures, there was fourth quarter 2006 growth in drawdown, and we have taken some of that share.” She puts this down to choice of distribution, brand and the flexibility of drawdown. The face-to-face team was also strengthened to 20 and will get bigger as demand grows.
The theme for Crossley on entering the second quarter of 2007 is still innovation with flexibility in the equity release market, and not just thinking in terms of traditional assets when it comes to retirement provision. She says: “We should not close doors and we should think laterally. We need to think more broadly. It is a hugely diverse environment, and we need to be very nimble.” Crossley says that she speaks to the Prudential’s annuity business director very frequently and admits that there could be a meeting of minds between the annuity and equity release sectors with some sort of joint collaboration. But other than hints, Crossley remains tight lipped.
What is certain is that Prudential remains committed to the equity release market and Crossley, with her marketing knowledge and keen understanding of the retirement market as a whole, will be key to its success. n
