The FCA continues to focus on later life mortgages following its review of to the market and emerging concerns over cost of living and rising interest rates (write Gary Storer and David Robinson from Konexo UK).
“Our review led to the largest later life mortgage firms making improvements to their sales and advice practices, and almost 400 promotions have been removed or amended … We expect all firms to assure themselves they comply with existing rules and guidance and higher standards under the consumer duty.’ Sheldon Mills, Executive Director of Consumers and Competition FCA September 2023
The Council’s Autumn market report showed in the current climate, high levels of debt and a lack of pension savings make it increasingly likely that many homeowners will need to borrow against the value of their properties in later life to make ends meet. The FCA has been focusing on the risks of lifetime mortgages and equity release advice, publishing a critical review in September 2023. At Konexo (a division of Eversheds Sutherland International), we have been working with firms to improve their approaches to advice and provide practical refresher training for advisers.
The Consumer Duty introduced this year raises the burden on advisers and firms to demonstrate they are protecting the interests of their customers and working to prevent ‘foreseeable harm’ in the recommendations they make.
By definition, customers in retirement relying only on pension income are often vulnerable and so this imposes increased duty on the adviser and firm to protect the customers interests. The main areas of poor practice we have seen in firms align with the FCA findings:
- Not sufficiently exploring and challenging the income and expenditure requirements of customers and their need to release funds.
- Not fully modelling all the options available to customers and the financial impact of the different options. This order-taking mentality often results in not challenging the customers’ preference for not paying interest during their life with the effect of rolling up large amounts of interest into their estate. The Equity Release Council say that keeping up voluntary partial repayments of £2,500 per year could save the average lifetime mortgage customer nearly £70,000 over fifteen years.
- Not being able to evidence the above or provide ‘suitability reports’ which fully set out the options and recommendations, linking them to the customers financial needs and objectives.
So what do we advise firms to do? Our top five tips are as follows:
- Re-engineer your advice process to include more extensive information gathering around the current financial position and exploration of customer income requirements.
- Create adviser guidance on high risk scenarios and how you want them fully to explore alternatives with customers and document this in their suitability reports.
- Increase your monitoring and QA standards to ensure these risk areas are identified and corrected if necessary.
- Review the impact of rising interest rates on existing customers and see whether they are able to make some partial repayments.
- Regularly run education workshops for your advisers and support staff to ensure they understand your requirements and explore customer case studies.
Finally, in the current climate it is essential that senior management with their appointed Consumer Duty Champion develop a culture among advisers in which they are rewarded for giving good quality, long term advice and not advice which incentivises short term sales and commissions.
If you would like to discuss this with us or to arrange an independent review of your advice framework or adviser skills please contact David Robinson ([email protected]) or Gary Storer ([email protected]).
- The views of contributors are not necessarily shared by the Council
