How can later life advisers ensure they comply with Consumer Duty?

"I hesitate to call this a ‘battle ground’ for advisers, in terms of Consumer Duty and regulatory oversight, but one can already see this in terms of potential complaint exposure"

With just over a month and a half to go until the Consumer Duty rules become ‘live’, there is of course an increased focus on how later life lending advice firms comply and how they prove their ongoing compliance.

One of the key areas, within our lending space, in recent years has been the opportunity for clients to service their interest payments in some way or make ad hoc penalty-free repayments.

This has been helped considerable by the Equity Release Council standard for new equity release products which must include a penalty-free repayment facility if they are to formally meet the levels required by the Council. While they are not able to impose this for existing services and products, there is a growing understanding of just how important this is for all clients.

Last year, over 91,000 customers made payments into their lifetime mortgages, which to my mind, increasingly shows an awareness of its availability, and of course highlights that advisers are having these conversations with their clients.

It will not need me to tell advisers what they need to be showing in terms of an income/expenditure analysis for each client, but there should certainly be a deep-dive into the customer’s finances and their ability to either wholly or partially service the interest, plus of course their ability to overpay.

I hesitate to call this a ‘battle ground’ for advisers, in terms of Consumer Duty and regulatory oversight, but one can already see this in terms of potential complaint exposure, especially if the documentation isn’t clear about the whole repayment conversation, and the understanding a client expresses (or perhaps doesn’t) in terms of what it means.

Let’s be in no doubt we are likely to see an increase in complaints in this area and, going forward, it would seem remiss of advisers not to document fully what the conversation was, how it was explained, what examples were provided in terms of the difference interest servicing could make to the overall debt, and of course, how the client reacted and responded to this.

In fact, we have the opportunity here to present a collective message to our clients on this very issue, supported with the data which, for example, shows how much a certain payment each month can make to the overall debt, and what it would mean if they do not make this payment.

Certainly, for those who have that ability to repay at the point of advice there is a very definite advantage in having this conversation, however advisers should also bear in mind, that these advantages won’t go away for any client, and that their circumstances can change over time.

The client that did not have the capacity to overpay from the outset might well gain that capacity at some point through the period they have the product, which makes the need for regular client contact even more valuable.

I would suggest – and I know many advisers already do this – that on the anniversary of the product completion, you get back in contact with the client and again outline the opportunity and the difference it would make to their specific circumstances.

Not only might this generate a positive response in the mind of the client, but it will show how you are engaging on a regular basis with the client and that you are not simply parking the case in a filing cabinet after completion, never to be looked at again.

Now this ‘once and done’ approach is something that very few specialist later life lending advisers would be doing anyway, however there might be the odd case which somehow slips through the net, and it would be deeply unfortunate if this is the one that generated a complaint and you did not have that regular contact – or the documentation to prove it – fully available.

It is a ‘belt and braces’ approach – and some might baulk at what could be seen as ‘overkill’ in this area - however, we’re all acutely aware of the need to keep on top of these areas, to assess a client’s needs and circumstances regularly, and to make clear from the outset what payment options are available and the significant difference they could make to a roll-up debt.

This might not even be, of course, full interest payments but the option to pay partial ones, and again, a commitment to keeping them fairly aware of those benefits is likely to mitigate heavily against a complaint risk, particularly when you can prove exactly what was said, when it was said, and the ultimate decision made.