Equity release: An overview of the advice process

Jane Mullan, national field sales manager at Pure Retirement, explores best practices in the equity release advice process, and at what stage in the process they fall.

Related topics:  Later Life
Jane Mullan National Field Sales Manager at Pure Retirement
7th February 2023
equity release house plan mortgage sign house paper

The learning objectives for this article are to:

  • Explore best practices in the equity release process.
  • Understand the key information that customer-facing documents have to feature and how they fit into the wider regulatory framework.
  • Ensure best client outcomes.

The equity release market has undergone a period of comprehensive growth, with full end of year lending figures for 2022 showing a combined total of £6.2bn of released equity across the industry. As the market has grown it’s brought with it a diversifying customer profile, with an array of needs and priorities to accommodate during the advice process.

The aim of this article is to explore best practices in the equity release advice process, and at what stage in the process they fall. In addition, we’ll look at the key information that customer-facing documents have to feature and how they fit into the wider regulatory framework and help to ensure best client outcomes.

Initial disclosure

When you first make contact with a customer, you are expected to provide them with a range of key pieces of information, in order to ensure the client understands and accepts the nature of the service you’re providing, the associated costs, and the regulatory protection available to them. You must provide:

• The scope of service you offer
• Your regulated status
• What he/she will have to pay for your service
• Whether any fees are refundable
• Contact point for complaints, and reference to the right to take a complaint to the Financial Ombudsman Service
• That they are covered by the Financial Services Compensation Scheme and the level of protection provided

The fact find

Completing a full fact find with your prospective client is an important exchange of information and helps to establish not only their current needs and circumstances, but also their objectives and desired outcomes. The more information that’s gathered during this part of the process, the more complete a picture will be painted, helping you to research products and make the best recommendation.

Rapport is key to this process, as the more a client trusts you the more willing they’ll be to provide the information you need. It can be helpful to explain that the questions aren’t meant to be intrusive but have been designed to allow you to make a bespoke and personalised recommendation. The information contained in a fact find must be gathered before discussing suitable options with a client, and contain sufficient personalised, accurate and detailed information to allow you to make a recommendation.

If relevant information is missing then the suitability of advice may be in question, and the FCA and compliance teams generally take the approach that there can never been too much information recorded in a fact find. Ensure that any discussions are fully documented, and bear in mind that if a client is unwilling to disclose information than this may mean they will be unable to continue the advice process (in this instance, you may have to reiterate the importance of obtaining relevant information if they want advice).

Involve friends or family

It’s good practice to suggest that the client has friends and family present during this process. Not only does it provide extra security for the client, but it also allows you to demonstrate client fair treatment. However, it’s important to establish that the client is comfortable with this, and you may need to consider possible coercion (especially among vulnerable clients). There may also be instances where you need to respect that clients don’t want others involved in the process – while it can be helpful if beneficiaries are aware of the implications for the estate, all decisions ultimately sit with the client.

Hard and soft facts

It’s important to capture both hard facts and soft facts as part of the process in order to get a complete picture - hard facts are factual statements (i.e. their age and income), while soft facts are thoughts, feelings and emotions. It’s important to consider the concentration span of older clients and potentially break up the fact find into more than one stage as needed. It’s also worth considering avoiding jargon in your questions, using playback to confirm client understanding, and signposting sections of the fact find so the client has a better idea of why that information is needed.

Obtaining all the salient points will help you to gather a picture of your client, and whether they’re looking to release funds for aspirational or needs-driven reasons. This in turn will help you to make sure that equity release is the right option for them, and whether there are alternatives ways to raise funds that could potentially be more in line with their current situation. It will also help you to better understand their priorities when it comes to product features – i.e. is it releasing the most money, receiving the lowest rate, low-set up costs, penalty-free option repayment provisions etc.

Once you’ve the information you need, some advisers ask clients to check and sign the fact find to ensure it’s a clear representation of their circumstances, while others provide clients with a copy after the meeting in addition to the copy they keep for their own records. In all instances, the date on the fact find must be before the date that any concrete advice is given. Once you’ve closed the meeting, it’s important to set out the next steps and agree a way forward, managing client expectations. You’ll need to prepare a formal recommendation, and then establish a meeting with your client to discuss your findings.

Fact find analysis and establishing suitability

When you come to analyse the fact find, the benefits of establishing clear priorities in terms of client wants and needs when it comes to product features will likely become clear quite early on. You will often be given several requirements, but few products will meet all of them – as a result, your job as an adviser will be to consider their requirements and generate the solution to best suit their needs.

A personal recommendation must give advice relating to the merits of entering into a regulated equity release plan, relate to a specific product, and be given to a specific person in the capacity of borrower, potential borrower, or Power of Attorney. Additionally, you must ensure the benefits to the client outweigh any adverse effects on their entitlement to means tested benefits, their tax position, and repaying unsecured debts and replacing them with a long-term secured debt. You’ll also need to demonstrate that any alternative methods of raising the required funds have been investigated, discussed, and discounted.

State benefits are an important consideration during this process, and the Mortgage Conduct of Business rules state that before making a recommendation for an equity release solution you should consider the impact on the client’s entitlement to them. If you lack the necessary knowledge to make that determination, you are expected to refer the client to an appropriate information source such as the Money and Pensions Service.

Your obligation as an adviser

To reach the point where you can make a recommendation you will have:
• Gathered facts regarding client needs
• Considered the potential impact on state benefits
• Looked at alternatives such as downsizing, grants, and other financial products, considering best advice and looking at wider options beyond equity release products
• Determined whether a lifetime mortgage, home reversion plan, or other financial product is most appropriate for your client needs
• Researched the marketplace for a product that best meets client requirements

Suitability reports

It’s important to present any recommendation you meet in a clear format, giving thought to client demographics. While not mandatory, it’s considered to do so in the form of a suitability report. This not only provides a clear and permanent record of any advice given, but also meets FCA requirements regarding record keeping relating to the client’s information (including that obtained during the fact find) and the reason why you’ve concluded the advice meets FCA suitability requirements.

These records should be kept for at least three years from the date advice was given, although many advisers keep them for far longer given the long-term nature of the product.

A high-quality suitability report will be personalised and free from standardised text and will make it clear why equity release is right for the client, why the recommended release amount is right for their needs, and why the product is the right option for them. It’s considered best practice to also include:

• An overview of client circumstances
• How long the client has been considering raising capital
• Who attended the meetings (and how they were conducted)
• The reason for recommending a particular product
• That clients have had the opportunity to seek expert tax and benefits advice
• Why alternatives were deemed to be less suitable

Presenting your findings

The FCA requires that all consumer product information is given in a set format called a Key Facts Illustration. This must be issued at specific stages of the equity release sales process, including the point of recommendation (where it must be fully explained before the application for the recommended mortgage is submitted) and should be provided either as a paper copy or an email document that can be printed.

An illustration must be provided when you recommended a particular lifetime mortgage or home reversion plan, provide written information specific to the amount your client wishes to borrow, or if the client requests written information specific to the amount they wish to borrow. The illustration should also clearly display all fees, including your commission that you will be paid by the lender and it’s imperative that you do not complete an application, or accept any payment that would commit a client to a particular product, until the client has received and reviewed the illustration.

It’s important that you have a good understanding of the content before presenting it, ensuring that you have a good technical knowledge that enables you to answer client queries and explain key information – especially the more complex elements such as early repayment charges or the compounding of interest.

Next steps

Once you’ve presented your findings, it’s important you establish agreed next steps, and it’s likely many clients will want to go away and carefully consider your recommendation and involve their family members. It’s important to proceed at the client’s own pace and not to pressure them, while also ensuring there are no areas that need further clarification and that there are no objections.

Once a client has accepted your recommendation and agreed to make an application, you’ll need to take the time to explain the next steps of the process – while they may be unfamiliar to you, they will likely be alien to the average applicant. Things to cover off include what documents will be sent to the provider, the role of the surveyor (and the difference between an equity release valuation compared to an estate agent’s), the role of the solicitor, and points of contact for queries.

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To recap, this article has helped you...

  • Explore best practices in the equity release process.
  • Understand the key information that customer-facing documents have to feature and how they fit into the wider regulatory framework.
  • Ensure best client outcomes.