There could be a tendency – after what was clearly a very good year for the later life lending market in 2021 – to move into 2022 with a belief that history will simply repeat itself.
Of course, the fundamentals of our sector remain very strong, but I think we all have to steel ourselves against an assumption that ‘what will be, will be’, that we can do no wrong, and that business will simply flow through the doors.
Now, I’m acutely aware that advisers are highly unlikely to view the year ahead in those terms. There can be few finance professionals with whatever the opposite of a sense of entitlement is than later life advisers, and that is undoubtedly what ensures they continue to write quality business, get the right consumer outcomes and are highly successful in that.
However, as with any sector – even those on the up – there are always going to be challenges and headwinds to work through, and it would be completely remiss of us not to remind advisers of some potential areas, and to help them achieve in spite of them.
As is usual, the regulator will play a significant role here, perhaps not so much in later life lending-specific work – although we do await further information and follow-ups on this – but more so in terms of its Consumer Duty consultation, which is designed to raise standards in terms of their duty of care to their clients.
Now the easy response here would be to, for example, look at the Consumer Principle that sits at the heart of these proposals – ‘A firm must act to deliver good outcomes for retail consumers’ – and respond with, ‘Well we already do that as a matter of course and have no changes to make’.
Again, I think this would be the wrong approach because it’s clear with these proposals that the FCA doesn’t believe all firms do this as a matter of course, and therefore is introducing a specific Principle to replace two it already has.
There is also going to be a cost implication here and it is significant, regardless of what size firm you are. It’s estimated that all regulated firms will have to pay a combined one-off direct cost in the range of £688m and £2.4bn to be compliant with these new Consumer Duty rules, and it won’t stop there. Annually those costs will be between £74m and £176m to keep on proving you’re meeting the regulations.
So, it’s clearly important that our industry and advisers specifically have their say on these proposed rules. The Equity Release Council has a very helpful briefing note on the Consumer Duty proposals for member firms and is seeking feedback to inform its response.
I’ve read a number of commentators talking about the FCA effectively gilding the lily with these new rules; that it already has the means at its disposal, within its current rule and principal framework, in order to get the outcomes it requires, without the need for a specific Consumer Duty.
However, again, that’s clearly not the view of the regulator, and firms should be aware that this is coming down the tracks, and firstly, they need to have their say before the rules are formalised, and they will need to ensure they meet the rules when they are introduced.
Something else to be aware of, and it again ties in with consumer outcomes, is the greater degree of awareness around later life lending, the increase in customers, and what this might mean in terms of scrutiny and action.
Let’s be frank here, I can’t remember a time when equity release, for example, wasn’t on the radar of various regulators, bodies, Ombudsman, consumer groups, and the like, and the later life lending sector is perhaps more prepared than others to deal with this. Plus, it has a strong track record here, certainly in terms of the number of complaints advisers receive and the miniscule number that are upheld.
However, as the market grows – and there’s clear evidence this will continue – we will be in the spotlight more than ever before. I fully anticipate we’ll have an equity release sector alone that could double in size over a very short time period; add in other types of later life lending and we will be a sector of substance. We’re already getting there.
The inside view is that FOS, for instance, is not overly worried about our sector in terms of complaints – and the results bear this out – but we are always a newspaper case study away from a hit to our reputation and that of the products and solutions we offer, even if we are as heavily regulated as any sector in financial services.
This is not so much a warning as a call to keep up the good work, because we are in the spotlight like never before and that is not going to change anytime soon. Use all the services at your disposal to ensure the clarity of your advice and the transparency of your operation, and we won’t go far wrong.
2022 should be an excellent year for later life advisers – just be on your toes, engage with the regulator, and keep to the very highest of standards that you are already renowned for.
Stuart Wilson is CEO at Air Group