Professional Brief

Over the last few years we have been witness to a widening pensions gap and steep rises in property prices. These have both contributed to making equity release a more mainstream financial product. Older homeowners seek to capitalise on the value of their homes to supplement their retirement income and, as a result of this, increasing the number of intermediaries giving advice on equity release and improving the standards of this advice have never been more important.

Brokers must pass the relevant qualifications to be able to advise on equity release products. SHIP recently announced that as of 1 August next year none of its members will accept business from advisers who are not so qualified. This is something that many sectors of the financial services industry have welcomed and the idea behind it is to stop brokers simply dabbling in the market and to demonstrate their commitment.

This move should go some way to making brokers take the provision of advice on equity release products more seriously. There is also an industry wide view that if equity release providers ensure that qualifications are a pre-requisite for working with them, even more advisers will be encouraged to take specialist exams for equity release and so improve the quality of advice that they give.

This summer well over 3,000 financial advisers have sat the CF7 paper, which shows that there is a considerable number of advisers wanting to get into this area of financial advice. However, the problem is not making advisers realise that they should be able to advise on this area of the market, it is making them realise that it is an area that will be financially worthwhile for them to operate in. Too many people assume that they will be providing advice to those at the bottom end of the scale, to those on a low income and receiving benefits. This has been reinforced by the FSA mystery shopping exercise, which has concentrated on advice to those people qualifying for pension credit and similar benefits.

This is not a full reflection of the market. The Retirement Plus case pipeline has an average KFI of £120,000, which is more than double average KFI of other equity release businesses. The more upmarket advisers get in giving equity release advice, the more it becomes part of, as opposed to all of, what the brokers have to offer. With the more upmarket clients advice on equity release will almost certainly become part of a wider financial planning role that would incorporate other products and solutions including pensions and inheritance tax planning.

Most brokers believe that they need to make around £1,000 out of each equity release case that they advise on in order for it to have been worth the time and effort. This is not going to be a problem if the case is worth around £80,000 or more, but in the cases worth around £20,000 - £30,000 advisers are highly unlikely to make this much. Incidentally, with clients at this higher level, eligibility for benefits will not be an issue, so the advice will actually be more straight forward.

It might be the situation that a broker will complete just 6 or so equity release cases each year which would make them a “dabbler” in the current jargon, but it is probable that they will have discussed and advised on many more cases where equity release turned out to be inappropriate. Doing only 6 complete cases a year might not be a sign of poor advice, it might well be the opposite as the broker has felt only these cases have merited an equity release solution. However brokers do need to be up to speed on all equity release products including the reversion ones and the market in general as the current situation is currently very dynamic – if they don’t then they are simply not able to give sound advice. Equity release is therefore no different for brokers who have to keep up with mortgages, pensions and any other areas on which they advise.

The most recent figures of brokers sitting the CF7 exam show that the issue is not just about getting more and more intermediaries qualified to give advice on equity release, but about letting them know that equity release products are both worthwhile and financially lucrative; just as important as the other financial products that are on offer.