Consultant, author and trainer, Jon Dunckley of Fortica Training and Consultancy, presents some key findings from his MSc research on equity release and the protection of vulnerable customers.
Given the growth experienced by the sector in recent years, it is surprising how little academic research has been conducted into equity release and its impact on consumers. In fact, almost unbelievably, only one study has explicitly considered the impact of advice in this area, despite that advice being mandatory for almost all consumers.
That one study concluded that advice offered questionable benefits, since many consumers were unable to distinguish between good advice and bad advice, and since more financially secure customers are often able to conduct the research themselves, and source a product without the need for adviser involvement.
This study aimed to revisit the area and consider whether the original findings were fair in the current climate. It did so through the lens of vulnerability, to consider how advisers, and the broader sector, protect vulnerable customers through the advice process and beyond.
The findings revealed a picture of a market that has evolved significantly since the previous research was conducted. Product features, regulation and advice practices have all moved on, to the benefit of vulnerable customers, while the use of equity release has expanded beyond the traditional back-stop approach to encompass significantly more aspirational objectives. Many of the criticisms levelled at the product, and at advisers who recommend it, no longer hold true.
One potential concern to emerge was the lack of common understanding of vulnerability between advisers. This appeared to support the findings of past research which questioned the merits of mandatory advice in a market where the majority of customers are potentially vulnerable, if advisers have no uniform understanding of vulnerability.
Although each participant appeared to see the importance of recognising and protecting vulnerable customers, each had a different approach to the definition of these customers, and definition was often by use of a specific customer example where vulnerability had been displayed, rather than by a more general definition of vulnerability. In other words, when asked what vulnerability means, advisers were able to describe a vulnerable customer they had dealt with but found it harder to offer up a formal definition of ‘vulnerability’.
One consistent theme was the importance to advisers of ‘gut feel’. Many said that they use their own experience and intuition to gauge the level of a customer’s vulnerability. This often appeared to stand in the place of detailed understanding arising from in-depth training.
Even where specific vulnerability training had been undertaken, this was often done with a ‘light touch’, involving a short self-study module, rather than a detailed exploration of vulnerability and its multi-dimensional nature. This potentially contrasts with the FCA view that all staff should receive ‘adequate training’ to be able to identify vulnerable customers and could expose both customers and advisers to risk.
Given the great steps forward the sector has taken as a whole, this perceived importance of adviser experience and gut feeling raised questions as to whether the possible shortcoming in adviser understanding of vulnerability could be more a matter articulation than lack of knowledge. It is possible that advisers are attuned to picking up on vulnerability signals and naturally act upon these within their role but are not able to articulate this when required to summarise what constitutes vulnerability.
The FCA’s approach to vulnerable customers breaks vulnerability down into sub-themes:
- Health – physical disability, long-term illness, hearing or visual impairment, poor mental health and low mental capacity / cognitive disabilities.
- Life events – caring responsibilities, bereavement, income shock, relationship breakdown, non-standard requirements like ex-offenders.
- Resilience – low or erratic income, over indebtedness, low savings, low emotional resilience, lack of support structure.
- Capability – low knowledge or confidence in managing financial matters, poor literacy or numeracy skills, low English language skills, poor or non-existent digital skills, learning impairments.
These themes are interesting in their relevance to the natural role of advisers. Resilience measures, for instance, are one of the natural domains of the equity release advisers with many customers having low income and savings and high levels of debt. It is possible the evolution of the advice sector has already addressed some of these issues at a structural level, without the participants being consciously aware of doing so.
The lack of consistent training cited by participants is perhaps an avenue for further exploration in addressing this issue. Even if training represents the formal articulation of pre-existing practice, it can help to show advisers why they need to do the things they are already doing.
Where gaps are present in current approach it also gives the opportunity to address these by embedding process change. This training, however, needs to be of a sufficient depth to bring about genuine change where needed if it is to help advisers fall in line with the requirements set out by the FCA and protect their customers.
The views of contributors are not necessarily those of the Council.
