"Do we have enough general knowledge to consider other possibilities that may be better for our customers and the referral network to get them to the specialist they need?"
This leads me onto later life financial advice, in particular, the debate about stand-alone equity release qualifications. Following some lobbying the FCA raised two simple questions in its review of qualifications paper FC 16/24:
Q4: Do you consider there is a market need for an alternative to the current appropriate qualification approach for equity release, either as (a) a top-up to existing pensions or investments appropriate qualifications, or (b) as a standalone appropriate qualification in equity release?
Q5: Would either approach lead to a significant increase in the number of individuals appropriately qualified in respect of equity release? Why?
In black and white extremes equity release is used in two main areas: people who reach retirement with unpaid mortgages and no means to repay them without selling their home; and people who need to turn to their home to augment their retirement income to maintain the lifestyle they want.
In the former, there is a need for knowledge of different ways of borrowing in later life. The speed at which new products are coming to market is offering new solutions to a whole range of customers. Therefore, you should not be advising on equity release without knowledge of the mortgage market for older borrowers. This also raises the question, should mortgage advisers be advising older customers without talking about hybrid products? To do so they need to have knowledge of equity release.
This presumes that all alternatives to repay the mortgage have been considered. To do this requires knowledge of pension freedoms and ways to efficiently make withdrawals from other savings and investment products.
The second group, those seeking additional retirement income, need to consider hybrid and other later life mortgage products as well as equity release. Without giving consideration to them the best solution for the consumer may not be considered. There are a range of equity release solutions – for instance, should a drawdown facility be used or a lump-sum contract? If a drawdown facility is used how often will it be used and how will the required income be facilitated in the intervening periods? If a lump-sum is taken how will the income be generated and longevity risk managed? Should a purchase life annuity be considered?
To me an additional qualification is the wrong debate. The debate should be about whether the customer is receiving the service the customer should expect. In our own fields we are all specialist experts, however do we have enough general knowledge to consider other possibilities that may be better for our customers and the referral network to get them to the specialist they need?
Let’s also remember that later life financial solutions for the average family are complex. Consider Mr and Mrs Difficult. Mr Difficult has a pension pot of £55k, Mrs Difficult has £25k. They have a house worth £250k but have a £60k interest-only mortgage with no means to repay it. They are aged 64 and 62.
If they go to a mortgage adviser it is unlikely that their pension assets will be considered beyond how they could satisfy any affordability tests for future mortgages. If they go to a pension adviser they will consider how best to generate retirement income assuming it will be able to service any future mortgage solution. Neither is the service Mr & Mrs Difficult actually require.
Eventually, the FCA will have to look at qualifications for later life in the round. They are faced with a problem that if they move too quickly as with the Retail Distribution Review they will force many from the industry at a time - where due to pension freedoms and the MMR - the need and demand for advice has never be greater.
It is a very long journey from where we are today to a world where everybody is a specialist in all aspects of later life financial planning - if that is at all possible. However, now the stone has been lifted by those calling for a standalone equity release qualification, advisers in this space need to consider whether and how they broaden their skill base and how they service their clients.
