The reasons why a client might want to take out an equity release product can be many and varied. In fact, some of those reasons might not be known or fully understood by those who are crucial to the client even being presented with the opportunity.
I’m thinking about those professionals, for example, who often act as introducers to later life lending advisers and are pivotal in terms of their role as the ‘middle man/woman’.
Advisers often rely upon their introducers in order to present the late life lending opportunity at the very earliest stage, and clearly if they’re not aware that equity release, for example, can be used for a specific need, then they might not introduce a client who has it.
We’ve conducted some research amongst introducers which suggested they are only aware of two or three reasons why clients might use equity release, however there are of course many more.
Which is why we have a one-page document available to members which outlines 12 reasons, and it can be sent to all introducers, whether agents, solicitors, accountants, or other professionals, providing a full overview of the reasons why people opt for equity release.
There is, of course, another party who might benefit from seeing this, and that is the client themselves, especially in a world where drawdown products are the most popular and where they themselves need to inform the lender/provider about how they intend to use the money.
This road is becoming a little more difficult to travel, and of the 19 equity release complaints FOS had seen by the end of March this year, three were upheld, and two of those related to drawdown being declined by a lender.
At the heart of this is the potential for a discrepancy between what the client says they are going to use the money for at the outset of the product, and what they might tell the lender or provider when they go back to secure a drawdown amount.
In essence there does need to be a consistency here otherwise the lender – at the very least – is going to look much more closely into it, and – at worst – might well turn down the drawdown because it differs so radically from the original ‘reasons why’.
Now, of course, within all of this has to be a recognition that client’s circumstances can change and, what they thought was going to be the reason for a future drawdown now ultimately has to differ, but from an advisory point of view, this needs to be relayed to the client.
If, for example, the client has said they intend to use a future drawdown in order to pay for a child’s wedding, but then tell the lender they’re actually going to use it to pay for a new car, then the client has to be aware this reason might well be rejected and the money might not be forthcoming.
A client who receives this rejection is unlikely to be happy, hence why we are seeing increased complaints in this area, and again it’s a question of the adviser firstly having had these conversations, and having the documentation to prove this, and also the client’s response.
Essentially, the adviser needs to make two points – the drawdown amount is going to be charged at the prevailing rate and there are no guarantees it will be accepted by the lender, particularly if there is a high level of differentiation between what the client told the lender they would use the money for, and what they are now saying.
Unfortunately, complaints are still likely to emanate from this specific source of discontent, but advisers who cross the t’s and dot the i’s in this respect are going to have a much better chance of the Ombudsman finding in their favour.
Plus, one other point on this, having chatted to the Equity Release Council – they are now seeing their standards and membership being brought up by the Ombudsman as further proof of good practice by advisers, when looking into complaints. In other words, FOS know that the standards to which the Council works are higher than the regulatory ones, and therefore advisory firms who are Council members are seen to be doing extra across many areas.
This is helping in terms of fighting complaints and is certainly something to bear in mind if you’re a later life/equity release adviser who is not an ERC member.
Overall, it’s about being utterly transparent with the client upfront, and leaving them in no doubt of the potential situation which might arise if their ‘reasons why’ do change.
Stuart Wilson is Chairman at Air Club