Speaking on a panel debate at this year’s Equity Release Summit, chair Tom McPhail, director of public affairs at Lang Cat, asked how products in the equity release market could be improved through development.
Referring to his knowledge of pension transfers, Jon Dunckley, managing director of About Consulting, said that to demonstrate fair value, it was important to look beyond the initial release of funds when looking at the level of remuneration.
He said it was a problem that there was not a “joined-up system between the provider and adviser for future drawdowns”.
Dunckley added: “For me that’s one of the biggest areas that need addressing. If the adviser is being paid upfront for the advice that includes a drawdown facility, that then has to involve some kind of contact between the provider and the adviser at the time when the drawdown facility is exercised. So, you can demonstrate fair value there.”
He said an alternative could be to entirely change the structure by providing a smaller upfront adviser fee followed by ongoing payments.
Dunckley added: “So those advisers who do service those clients on an ongoing basis then receive remuneration for doing that. And it’ll also build up an ongoing income stream in the same way that the wealth adviser does.
“I don’t think the current system works, in my view, within the frame of Consumer Duty and fair value.”
Changes to RIO mortgages
Charlotte Allen, chief compliance and risk officer of Key Group, said it was an issue that retirement interest-only (RIO) mortgages did not have an end date.
She added: “There’s definitely an area [for consideration] whereby products can offer a defined repayment period, maybe not for the full amount of interest depending on what the customer can afford. This will help [borrowers] to therefore serve some of the interest, access a higher loan to value (LTV), and benefit from a lower interest rate.”
Allen said she was seeing more borrowers make repayments particularly now that the Equity Release Council (ERC) had brought in a penalty-free repayment standard.
She added: “There are high proportions of customers making repayments, but it’s not necessarily consistent and it’s not as high as potentially those customers who through the advice process say they want to and can afford to make repayments.
“There’s definitely a bridge between the products which can make equity release even more attractive.”
