The Later Life Dilemma - To whom are you referring?
18 January 2024
So, here’s the dilemma. You may be a very experienced mortgage advisor, with an authorisation that allows you to advise on interest only mortgages that take your customers passed retirement age. You may also advise on Retirement Interest Only (RIO) mortgages.
Alternatively, you may be an experienced IFA or SOLLA accredited advisor with years of Long Term Care Planning and/or Equity Release advice behind you. But - and since September of this year this is becoming an increasingly big but - how do you ensure you meet the FCA’s expectations as published in their Multi-Firm Reviews (Published: 14/09/2023)? How do you “ensure balanced conversations and disclosures of the availability of alternative options?”
This last quote is one of seven FCA Expectations taken from the Multi-Firm Reviews. It’s a dilemma we at UK Moneyman had addressed a year or so before the latest review. Up to that point, we were a well-established Mortgage Advice firm with an ethical approach to our customers. However, when it came to dealing with enquiries from older clients, it’s possibly fair to say we “sat on the fence.”
At the time, we could advise on RIOs or other Interest Only deals from the High Street but were worried about how we could evidence that this route was a better option than what may be available from, say, an Equity Release provider. We didn’t/couldn’t advise on Equity Release. We would refer on those customers who were felt to be more aligned to Equity Release products. We referred to an experienced, knowledgeable, and well-respected ER advisor. However, there was always the concern that the Equity Release advisors we spoke to have the opposite problem to us, in that they weren’t authorised to advise on the more traditional forms of mortgage lending, or indeed RIOs.
The concern, therefore, was always whether this approach met the spirit of the regulations. Rather than risk being open to potential complaint therefore, we could have simply chosen not to advise in the “Retirement Mortgage” arena, but that not only went against the grain in terms of our general desire to help customers, but also did nothing for the customers who needed help and advice of this nature.
Our decision, therefore, was that we needed to make sure we could cover all bases and brought “in house” the expertise and experience of Dan Osman as our Head of Later Life Lending. We expanded our offering into other areas such as Secured Loans and Bridging Finance - areas that we’d also traditionally “referred on” - plus extended our authorisation to cover advice on Home Reversion Plans to ensure that all potential lending options for older customers could and would be considered.
We also investigate any Charitable or Local Authority support that may be available to older customers and signpost these options to the client if they appear to be eligible. Thus, when September’s review was published, we were confident we could show that all options would be considered for all our later life enquiries.
Clearly not every firm is in the position to bring everything “in house” in this way. There is always the option of developing existing staff to train and take the relevant exams in the areas not currently covered, but we all know that takes time. Not only that, but it’s one thing to pass an exam but there’s no such thing as “instant experience” particularly in a field as complex as later life lending. It is also clear that many long-standing relationships already exist and there’s no doubt many of these referral relationships will have been built on years of trust, experience and the knowledge that the referral partner would act with absolute integrity in the advice given to the client, within the scope of the advisor’s authorisation. But therein lies the crux of the issue at the heart of the FCA’s findings - i.e. that there still may be gaps in what any referral partner can advise on so how you can show that all possible alternatives have been signposted to the client.
One way to evidence this problem can be shown with Home Reversion Plans. Clearly they account for a very small proportion of the overall “Later Life” sector - recent industry figures indicated that sales of this product actually represent less than 1% of the overall market - so this shouldn’t be seen in any way as a platform to suggest that they are the appropriate solution for the majority of customers.
Nevertheless, for that one client in a hundred, it could be the best option, and how does an advisor evidence that they’ve ruled it out as an option, if they’re not authorised to recommend them in the first place.
There are also examples where we’ve had referrals for, what our introducing partner thought would be, an Equity Release case, to finance some property adaptations for a client whose health had deteriorated. We were able to show that there was funding available from a charity who worked with the particular condition from which the client suffered.
Whilst that meant that neither the introducer, nor us, received any remuneration from this transaction, it absolutely underlines the commitment to disclose the availability of an alternative outcome that was the best result for the client, and echoes perfectly with the FCA expectation.
It’s probably fair to say that the uses of later life lending - in inheritance tax planning, in reducing the decumulation of assets/pension funds, as well as all the more common home improvements, family support, aspirational or leisure purposes etc. - coupled with an ageing population, means the opportunities for utilising equity in later life have probably never been wider. It’s also fair to say that selecting a referral partner able to meet all the FCA expectations, has never been more vital.
Wayne Dewsbury
Business Relations Manager
UK Moneyman Limited
