The Financial Services Authority’s (FSA) highly anticipated follow-up ‘state of the nation’ report, following the mystery shopping exercises of 2005, is expected in the next couple of weeks. These highlighted some serious concerns over the quality of advice given to consumers, with over 70 per cent of advisers failing to gather all of the relevant information on clients before selling equity release. The follow-up is expected to acknowledge a significant improvement in standards of advice within the industry over the last year but claim there is still much work to be done.
Never one to rest on its laurels, SHIP has been actively campaigning to raise the standards of advice within the industry throughout 2006. The SHIP Members’ Survey in January 2006 offered a grave warning that clients are potentially losing out because of a shortage of specialist IFAs advising on equity release and highlighted this concern as one of the top issues to address in 2006. Members, even at this early stage, were already expressing their concern about the lack of training and awareness about equity release. Members also called for a collegiate approach, with the Financial Services Authority (FSA), Council of Mortgage Lenders (CML), Association of Mortgage Intermediaries (AMI) and Association of Independent Financial Advisers (AIFA) and SHIP ideally working together to encourage IFAs to offer more specialist advice in equity release, raise awareness, improve training and review regulation regularly.
Improving standards
Since its inception in 1991, SHIP’s aim to improve standards in equity release has always been paramount. The looming pensions gap and phenomenal property price inflation witnessed over the last few years have combined to push equity release into the mainstream of financial planning as older homeowners seek to capitalise on the value of their homes to supplement their retirement lifestyle, and as such improved standards within the industry could not be more necessary.
SHIP has welcomed 20 of the largest equity release providers as members since 1991 and now represents over 90 per cent of the equity release market. Over the last 15 years, SHIP has worked hard to improve product standards within the industry, not least with its stringent Code of Practice, which guarantees independent legal advice, freedom to move home, clear presentation of costs and a no negative equity guarantee. In addition, SHIP has also been at the forefront of discussions with the FSA and other relevant bodies over the regulation of lifetime mortgages in 2004 and the imminent regulation of home reversions in 2007.
Therefore, SHIP has been instrumental in bringing equity release in line with more mainstream financial products. However, while such regulation is necessary, and an encouraging sign of the markets maturity, regulation does not ensure good products and certainly does not ensure quality of advice.
Vast improvement
The FSA follow-up report should acknowledge that there has been a vast improvement since the scathing mystery shopping exercise of last year. However, certain areas of concern will undoubtedly be highlighted – with advice standards expected to top this list. However, SHIP believes it has already started the process of addressing these concerns.
SHIP recently announced that as of 1 August 2007, no members will accept business from advisers who do not hold a suitable lifetime mortgages qualification. This radical move has been welcomed by many sectors of the industry and is intended to stop speculative dabbling in the market and encourage advisers to demonstrate their commitment to the industry. Compulsory exams will raise the bar in standards of advice by forcing advisers to take the qualification if they wish to attract and maintain clients.
It is hoped, that with SHIP members making such qualifications requisite for working with them, that even more advisers will be encouraged to take specialist examinations for equity release and so improve the quality and professionalism of advice.
In addition, to bridge the gap before formal regulation of home reversions in 2007, SHIP has also introduced a checklist that all equity release advisers and customers can download from the SHIP website. This checklist, while not mandatory, serves as an aide memoire to ensure advisers have asked their clients all the important and pertinent questions when advising on products; including (as the first point) the consideration of alternatives to equity release.
SHIP receives thousands of requests each year from customers wishing to obtain its handbook, and by making this new checklist publicly available it is hoped that customers will also be made aware of necessary steps, such as speaking with their family, before considering equity release.
Through these proactive measures SHIP has led the way in driving up the standards of equity release advice within the industry. It is hoped that the list and compulsory adviser examinations will address both members and the FSA’s concerns and help ensure a robust equity release industry for both advisers and clients for years to come.
