Last month the Financial Conduct Authority published its findings following a review of the equity release advice market.
This followed media reports of things not being well in the sector, of poor outcomes for older consumers, for whom, as the FCA has just reminded us again, the ‘consequences of their decision [to take a lifetime mortgage] are likely to have significant impact on their financial wellbeing for the rest of their lives.’
It’s very important to get lifetime mortgage sales and advice right, particularly given the vulnerability of many later life borrowers who don’t fully understand these products and the long-term implications of taking one out. They rely on a specialist adviser to look after their interests and ensure that a lifetime mortgage is the right product for them.
Spotlight on the sector
So, how did the sector fare? Can we look at the findings and rest easy, reassured that customers are well looked after, that the quality of advice in the later life sector is high? Are they receiving the sort of service that is commensurate with the standards expected of specialist advisers looking after the interests of older and particularly vulnerable customers?
No. We can’t. The review makes for very sorry and worrying reading. The FCA found unacceptable poor quality advice causing major harm for consumers likely to be vulnerable.
It’s noticeable that numbers aren’t mentioned in the report. There’s no mention of the ‘vast majority’, ‘most’ or a ‘small minority’ or a ‘few’. Instead we have ‘mixed’ results. There is some mention of cases where it was the right choice for the customer. But mostly it’s about the poor cases, where it was clear that it was not in the customer’s best interests.
There was one solitary reference to a ‘better example’ amidst lots of very poor examples – not even a ‘good’ example, just ‘better’ than the rest. All firms were asked to take action to address the findings. This suggests sector wide failings.
The FCA has acknowledged there is real, significant harm being caused to older consumers. They mention in the report that what they see today echoes the findings of their review into the quality and suitability of advice back in in 2015.
And yet, notwithstanding clear evidence that things haven’t improved and that vulnerable customers are being harmed, all that we have from the regulator is an end of term report saying that advice standards are ‘still not up to scratch’.
When will the FCA say enough is enough?
This is a regulator with a statutory objective to protect consumers and a Mission Statement focused on the vulnerable. Just what will it take for the FCA to say enough is enough? What are they going to do that makes this sector sit up and acknowledge that the outcome for often vulnerable customers just isn’t good enough? What is it going to take to fix this very broken market?
I know there are good advisers out there who suffer from the poor conduct of others, and who must be very frustrated to read the FCA’s report. There are also big, structural issues in the market that don’t help.
I have referred before to the lack of real customer choice in this sector, meaning that many customers who would never of their own volition choose a lifetime mortgage end up with one.
The simple fact is that their income in retirement means they cannot afford to make the payments or don’t want to take the risk that things might happen subsequently (such as huge care costs) that mean they can’t make their payments and could lose their home. No one, particularly older and more vulnerable customers, would ever risk losing their home.
An alternative approach
The FCA’s income-based affordability rules were developed at a time when most borrowers paid off their mortgages before they retired and could get by on their pension, mortgage-free. Times have changed.
The fact is that increasing numbers of older consumers need additional money in retirement and are looking for property-based solutions. Those who had future earning capacity but no assets at the start of their mortgage are now asset-rich but cash-poor as they head into their retirement. They need a different approach – one not based on income alone.
Why can’t their housing wealth be sufficient collateral for a mortgage? The FCA has already relaxed its approach by allowing the sale of an older borrower’s home to be a suitable repayment strategy for Retirement Interest Only Mortgages. Why can’t it be a suitable strategy for older borrowers, asset-rich but income-poor more generally?
It surely can’t be enough for a regulator to simply observe that customers are being harmed. It must take action to protect them. It’s time for the regulator to step up to the plate and get this sector sorted.