The regulator has been particularly vocal and stringent within our product area — with its rules and on the need for advisory firms to be vigilant and to avoid practices which may, even unwittingly, take advantage of vulnerable customers.
This week’s launch of the Financial Conduct Authority’s (FCA) two-stage consultation on helping firms treat vulnerable customers more fairly is therefore not a surprise.
This is not just an issue for equity release or later life lending customers.
The regulator is clearly looking for a mindset and culture change from advisory firms in how they deal with and advise vulnerable customers.
Equity release firms and individual advisers are perhaps more likely than average to be aware of the potential for a client to be vulnerable, because they are far more used to seeing these individuals.
Our sector has been, effectively, restructured to ensure better soft skills and levels of empathy and a willingness to go above and beyond the typical adviser’s role in supporting their clients. Our clients will be over the age of 55 and many will be a lot older.
There’s also been a commitment to ensuring that such clients are not: subject to undue influence or scare-tactics from family or friends, seeking advice because of the needs of others, or being conned out of money by those who might appear to have their best interests at heart.
Mortgage advisers’ soft skills
Part of the debate raging in the market at the moment is around the ability of mainstream mortgage advisers – who perhaps do not have these equity release-based skills – to provide this sort of advice, without being able to offer other, perhaps most suitable, products.
We have always been concerned that those who are not steeped in the equity release market might well treat older, and therefore potentially more vulnerable, clients as they would a mainstream borrower.
That’s really not the approach which works best.
Indeed, in equity release we have rules and regulations around independent legal advice and the fact that the adviser, while involving the family where necessary, may wish to see the client alone to ascertain their understanding of what they’re signing up to, and that they are clear on the responsibilities they have.
That doesn’t mean our sector is perfect, but perhaps does mean we are a little bit further down the road in terms of advisory firms recognising vulnerability and treating the client appropriately.
How to identify mental health issues
We could do more.
I’ve long been an advocate of a compulsory Legal Power of Attorney for every later life lending client, especially when it comes to drawdown products.
Without an LPA in place, it’s the client who will suffer further when they have the financial means at their disposal to potentially secure a better standard of living but are judged unable to make that decision.
Education and understanding of mental health problems and difficulties is a lot better, but firms might need to train advisers to recognise potential warning signs, and to ask questions that might illicit the true vulnerability of a client.
Plus things can change on a day-to-day basis. A client who seems completely in control and understanding of the situation at the first meeting might be very far from this the next time you meet.
This is therefore an ongoing situation that needs monitoring and firms should recognise this is not a one-and-done appraisal.
It will be interesting to see the proposals that come out of this FCA consultation.
One suspects that a large numbers of firms are going to have to change their approach, systems and processes to make sure they meet these new, undoubtedly higher, standards.