In September, the FCA found evidence of “poor advice” in the later life mortgage market, finding half of mortgage sales surveyed in firms did not meet expected standards.
Speaking at the Equity Release Adviser Summit, hosted by the Equity Release Council, Mark Burns (pictured), head of department for cross-market intervention at the Financial Conduct Authority, said: “We want you to be clear in your communication with customers, focusing on customers’ understanding and tailoring customer communications to meet the needs of customers.
“When customers have characteristics of vulnerability, we want you to think of what adjustments for additional support they may need.”
He continued that while advisers “know the products that you advise on inside and out”, lifetime mortgages had a lot of features that consumers may struggle to understand like the impact of compound interest and its effect on future financial choices.
Burns added: “Under the Consumer Duty, we expect you to increase your focus on monitoring and reviewing outcomes. It’s fine to have checklists in place, and they can be a useful tool but in our review we saw many cases of poor quality advice that passed the quality assurance process with flying colours. That shouldn’t happen.”
He urged advisers to think about the whole customer journey and suggested that end-to-end reviews of customers files could be a good way to do this.
This would focus on conversations had with customers and “not just boxes that have been ticked”.
Burns added that ensuring product recommendation met customers needs and having evidence to back it up was crucial.
“Can you say that you’ve made a good product recommendation? Or have you simply made a sale?” he noted.
‘Strong sales culture’ overriding quality advice
Burns said that during the review, whilst there had been “good pockets”, it had seen firms with a “strong sales culture” where sales were “incentivised at the expense of quality advice”.
“We understand that there are commercial drivers behind wanting to achieve a sale but that shouldn’t come at the cost of good outcomes for the consumer.”
He continued there were also examples where customer questions and doubts were “overcome by sales techniques such as objection handling” which he noted was the kind behaviour that “appeared to be steering towards a sale rather than the customer’s needs”.
Another area that came up in some cases was “minimal discussions” around alternatives such as a standard mortgage which could have been more suitable.
“Even when customers have a particular product in mind, we want you to consider that you’re asking the questions that help them understand further that’s really the right option for them.”
Burns added that there was “poor consideration of borrower’s income and expenditure” noting that “getting that right can be really key”.
“Consideration of affordability is well established in the mainstream mortgage market but we don’t have the same rules for lifetime advice. But, in order to really understand what the product as a customer, you need to understand the situation fully.
Examples of good practice used by some firms were tools to test eligibility upfront, demonstrate monthly payments of alternative product options, remuneration based on balanced scorecard that placed emphasis on service.
Another review not planned in short and medium term
Burns said that, for a “while”, the regulator wanted to “step back and see how the industry response to this and have conversations with firms on how they take this forward”.
However, he said that as a “data-based regulator” it would look for data to identify “potential outliers” in the market and it may “need to do further work in this space”.
He added that it was undergoing follow-up work with all the firms that were involved in the review, and they’ve engaged “really positively” with the changes made and all firms had changed their processes.
“In the short and medium term, we don’t plan an immediate piece of work to follow up.”
Burns said that there were “no huge plans” to do work on remuneration in the next six months, but as part of Consumer Duty it was looking at fair value assessments and in some sectors, it was already starting to “take that work on”.
‘Not as a product sale but a piece of regulated financial advice’
Speaking after the event, Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said that the first public words from the FCA following their later life lending review “gave some clarity on what they think needs fixing”.
He continued: “AMI is supportive of income and expenditure analysis being done in all cases to identify if a conventional mortgage, RIO or lifetime is most appropriate. This analysis should then lead to establishing how much is needed for which particular reasons and when lending to the maximum loan to value LTV is not appropriate.
“Clear explanation of the risks to balance benefits must be the norm. In particular, advisers must ensure the impact and amount of compound interest over the likely term of the loan is understood by customers.”
He added: “In recommending a lifetime product advisers must be mindful that this closes off options later in the customers life, and it must be seen not as a product sale but a piece of regulated financial advice delivered to the highest of standards.
“We have now been told. It is up to all of us to ensure we improve.”
Donna Francis, the Equity Release Council’s chief operating officer acknowledged some of the FCA’s concerns during her opening speech, earlier that morning.
She said: “We know from the regulator’s recent work that there are some notable features identified in the recent review where firms have fallen short of the regulator’s standards, let alone the council’s.
“That’s why events like this are so important. We must learn from the findings, must make changes, must get better and must move on.
Francis continued: “When it comes to professionalism, values, principles, and standards. You are the advocates for the sector. You need to be the rising tide that lifts all boats.”
“Today is about where we go next. What we can learn together and how we can continue to improve ourselves and our sector for the benefit of people who want or need to draw on their property wealth.”
