Peter Welch, head of sales and distribution of Bridgewater Equity Release
Business psychology is one field I am deeply interested in and I believe there is much to be gained by learning ‘the psychology of business’ – in effect, why we make certain business decisions, why we don’t make others, how we work, how we spend our working hours, where can we be most productive, etc. Understanding this can clarify our thought patterns and it can certainly help when we seek to gain insight by looking back at either poor or well-executed business decisions we have taken in the past.
A significant part of the work we carry out at Bridgewater is attempting to understand the recommendations advisers make and to give them all the information they need to make their recommendation whilst being as clued up as possible on the home reversion option. We are all fully aware that, as a percentage of the overall market, equity release is still a very small proportion of business, and indeed, within our sector home reversions make up a small part of equity release. However, we believe there are very good reasons to suggest it should be recommended in a far greater percentage of cases, possibly as high as one in five.
So, what are the reasons why lifetime mortgages tend to get the lion’s share of equity release recommendations even when a reversion appears to be the most suitable option? Well, here we are back to business psychology – in particular my feeling that many advisers appear to have an almost Pavlovian reaction to reversions.
For those not familiar with the work of Ivan Pavlov, let me explain. Pavlov conducted many experiments with dogs which sought to understand the ‘conditioned reflex’ of the animals. In his experiments, he would ring a bell every time the dog was served food. The dogs would initially salivate when the food was served/bell was rung but later on the dogs would associate the ringing of the bell with the delivery of food and salivate just when the bell was rung. This was the conditioned response – the dogs had got so used to bell ringing signifying food that they became conditioned to the ringing of the bell.
Taking this back to equity release advisers may seem slightly curious but I think there is a Pavlovian reaction at play here. To my mind, many advisers have a conditioned reflex when it comes to reversions and this belief seems to suggest they should only be recommended when the client is seeking to release the maximum amount from their property. So, the client wanting to release the maximum amount is the ringing of a bell to the adviser in which their immediate response will be to consider a home reversion; if the client wants to take less than the maximum then the conditioned response is that a reversion is not the right product. And that’s the innate response before they have even considered the client’s other wants, needs or thought patterns.
In my opinion this leaves the client at an immediate disadvantage because there are clearly many instances where a partial reversion – the release of less than the maximum equity – could be the most suitable option. Our goal is to educate and inform advisers to also look at the other needs of the client alongside a want to release less than the maximum. Does the client also want to ensure they can leave part of their property as a legacy? The roll-up of interest that comes with a lifetime mortgage may mean this is impossible to do, even at lesser amounts. A partial reversion sets this in stone for the client, plus they are still able to benefit should the value of the house increase.
We recently revealed the reasons why Bridgewater clients had taken out a partial reversion with us over the last 12 months and it is often illuminating as to what customers intend to spend their cash on. Top of the tree was home improvements followed by the repayment of a mortgage however customers were also intending to travel, buy a car or holiday home, or gift it to someone else. All valid reasons for releasing equity and these customers are choosing a partial reversion to do this and still retain a percentage of their property to do with as they wish, not forgetting of course the guarantee they can remain in their home rent-free for the rest of their lives.
These appear to be significant times for the equity release sector with changes afoot politically, regulatory, and economically that should push the product ranges more into the mainstream. It is therefore important that we are able to offer the widest range of opportunities to potential clients to ensure they can choose from the full offering. We should not be dismissing products out of hand because they do not fit a misconception or prejudice or conditioned response.
If we are able to rewire our thinking on this matter we have a much better chance of fitting the right product to the right customer and we will open up the sector to a far wider range of people who can benefit from equity release.