Robert Bowes goes through the issues advisers need to take into account if they are wishing to move into the equity release market
Advising on equity release for the first time is a daunting prospect for many advisers, but is potentially a worthwhile and growing area to consider diversifying into. The sector will invariably grow driven by changes to circumstances of the older generation, such as:
• Shortfalls in pension provision, caused by many contributing too late and not enough, below expected fund performance and falls in annuity rates, and reduction in state provision;
• Inflation and rising bills meaning it is very difficult for many to make ends meet;
• Desire to live well in retirement, with many wishing to make the most of the later years after a lifetime of work;
• Change in needs to leave an inheritance, with many members of the older generation having very financially stable offspring, or no dependants at all;
• Debt consolidation, with individuals heavily in debt at retirement age;
• Government support for the sector, with an acknowledgement that for many it will be an essential boost to income and further research under way.
Equity release is a product that can greatly enhance the quality of life of the policyholders; and for policyholders that do not have any desire to leave an inheritance it is an excellent way to maximise the quality of their later years with the safeguard that they can live in their home until they die.
Equity release consists of lifetime mortgages and home reversion plans, which should not be confused with re-mortgaging to release equity from property. Equity release is only available to the over 55s, in general, the policyholder does not make repayments (though there are interest only products), and is not expected to repay the loan before they die (although they can).
Equity release should not be confused with the more controversial sale and rent back schemes.
Lead generation is one of the main challenges to any adviser moving into equity release, particularly doing so in a cost effective way. Successful techniques include building up a referral network from other advisers (with the majority of advisers not wishing to advise themselves) or solicitors, targeted advertising to the older age group, for example in local publications, working with local clubs and similar organisations to get in touch with potential clients, and running seminars. Online promotion is an area of potential, which is set to grow, with an ever increasing number of over 55s using the internet. This is not just for surfing in the traditional sense, but conducting transactions online and social networking. With some thought it is possible to target exactly the right groups that would be interested in equity release, and with the right web presence, ensure that leads are created.
Advising on products
It is important to understand the products that are on offer and the market properly. It is not a good idea to become qualified to sell equity release and then only advise on these products for a handful of clients each year. If you are considering moving into this market, then a reasonable degree of commitment will be required.
As an alternative to providing advice on equity release, there are numerous equity release specialist firms that will take on the advice and compliance risk, offering a no cross-sell guarantee and paying attractive introducers fees. This is certainly worth considering if you only expect a small number of cases each year.
In order to give the best advice it is important to consider all the key providers, as different products are suitable for different needs and circumstances. Rates on a lifetime mortgage are very important, arguably even more important than a conventional mortgage as the interest is compounded up for the remainder of the policyholder’s lifetime, and it is also important that the product allows future withdrawals if these are needed by the client. As the client pays interest as soon as they receive the funds it is likely to be better to set up a drawdown arrangement where the client takes money when they need it.
How is the market changing?
In recent years the sector has looked very positive with several new entrants to the market developing innovative products. Unfortunately due to economic conditions some providers have withdrawn and rates have become slightly less attractive than they were. However, a growth spurt is still expected for equity release and it has remained more buoyant than most other product types in recent times.
Robert Bowes is product manager at Assureweb
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