How to evidence suitable equity release advice
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The long-term success of your business depends on the quality of your advice. After all, doing right by your clients is what drives lasting relationships and repeat business — all while keeping the regulator happy.
And yet time and again we see practices that result in poor outcomes and, ultimately, cause harm. Most recently it was defined benefit transfers, and now the FCA has sounded the warning bell on the equity release market.
The FCA’s recent multi-firm review found that the lack of relevant Know Your Customer information, insufficiently tailored advice and an inability to evidence suitability are the offending practices once again. And given the increased likelihood of vulnerability for customers in this market, the FCA made it clear that where advice isn’t good enough, it won’t hesitate to take action.
It’s a story we’ve heard before and, over the years, we’ve helped many firms to improve standards in this area. Because ultimately, when suitable advice is given, equity release can be an excellent product to enhance a customer’s lifestyle.
The Covid-19 crisis has drastically changed the financial plans of millions of people. So inevitably, demand for equity release will be at all-time high. Here are some ways that you can improve processes and evidence suitable advice.
Look beyond the Fact Find
Knowing your customer is not just about gathering information on a Fact Find. That information needs to be analysed to truly understand your customer’s circumstances. Only then will you be in a position to provide suitable advice.
For example, if a customer wants to take out equity release but also has significant savings, you should be questioning why those savings can’t be used to supplement their income instead.
Make sure you’ve gathered all the information you need and look to understand the various factors at play before providing advice.”
Don’t just take orders
All too often we see advisers taking a customer request as a green light to sell a product. The FCA has referred to this as ‘order taking’ and it is something that we’ve seen in the Defined Benefit Transfer market too. But this isn’t enough to demonstrate suitability – as their adviser, you must come to the conclusion that a product is in the client’s best interests.
An example of this could be where the client wants to consolidate short term loans into the equity release product. This can be suitable in some circumstances, but you must consider the advantages and disadvantages for each loan being consolidated. Some clients might not understand the disadvantages of consolidating short term loans into longer term loans, with the terms of the loans being consolidated. It’s up to you to make sure they know the risks.
Get your files up to scratch
In our experience, the vast majority of advice is suitable, but advisers simply haven’t kept their files up to date. So while they might be providing good advice, they’ve nothing to show for it. Keeping your files in order can protect you against future regulatory scrutiny, and also against any future complaints.
It’s worth spending your time getting it right. We conduct hundreds of file reviews a week across a range of products. It’s quite unbelievable how many of these files are not complete. This amounts to a lot of wasted cost for our clients and is one of the reasons we created our high-performance file review solutions, which kicks out these files for completion before getting to human review. But it would still be far more efficient to get them right first time.
It’s also important that files are tailored to the individual client. For example, risk warnings should be tailored to the client and there should be evidence that the client understands the risks involved. The FCA has also called for files to have the ‘voice of the customer’, meaning the customers words and explanations are used rather than paraphrasing. This will help demonstrate that the customer understood the advice, including the risks.
The risks of significant consumer harm in this area means the FCA has its back up. Take appropriate action to improve equity release advice now – you’ll thank yourself for it later.
It's worth getting it right
From advice model and standards reviews to complaint handling and remediation, we’ve got you covered.