Two thirds of financial advisers failed to pass all the benchmarks for giving good advice on equity release in an undercover investigation carried out by consumer champion Which?.
Posing as customers, Which? researchers visited 40 advisers and found that only a third of them met all the Which? benchmarks for good advice. Overall, five out of 12 equity release specialists passed the Which? test, compared with eight of the 28 independent financial advisors (IFAs).
Fact-find documents not completed
Advisers need to conduct a fact-find on each customer before they can give a suitable recommendation. 23 failed to carry this out to the expected standard and seven didn’t even ask about the researcher’s income.
Risks of equity release not explained
Equity release has several risks that should be flagged up. Some advisers didn’t mention how quickly the debt would grow or discuss the effect of compound interest. One IFA said there was no chance of using up all the equity in the customer’s home ‘unless you live to 150’.
Which? was also disappointed that almost half of the advisers didn’t mention or dismissed out of hand home reversions, one of the two main types of equity release plans.
Lack of fees clarity
Some advisers were also not upfront about their fees. Instead of disclosing the details early on in the advice session, 13 advisers didn’t discuss this until later on and a further five didn’t mention them at all, although one later confirmed fees in writing.
Which? calls for advice process to be tightened up
Martyn Hocking, Editor of Which? magazine says, ‘If you’ve been hit by plunging pensions, it might be tempting to release some much-needed money using your home. However, opting for an equity release plan is a big decision and it’s not one that should be taken lightly.
‘Which?’s investigation has uncovered some major flaws in the equity release advice process. We’d like to see a tightening up of the advice process but, in the meantime, if you’re considering it, make sure you visit two or three suitably qualified independent advisers to be sure you’re making the best decision based on the options available to you.’
The Which? benchmark
As a minimum, our researchers expected equity release advisers to provide the following information:
- Give all the information and paperwork about their service and fees required of them by the Financial Services Authority (FSA) regulations
- Conduct a thorough fact-find of the researcher’s circumstances and determine why they thought they wanted an equity release scheme
- Talk through the different schemes available and the pros and cons of each
- Talk through the alternatives to equity release, including downsizing
- Discuss the risks and make sure the customer was comfortable with those risks
- Make a suitable recommendation, and explain why it met the customer’s needs
More information on equity release
Which? is the only organisation outside of the financial services industry to test the quality of financial advice in this way and has been reporting on it for over 20 years. More information about getting the best advice on equity release is available in our guide to equity release.
The full article ‘Equity release: Which? uncovers inadequate advice’ appears in the August 2009 issue of Which? magazine. For a trial subscription, click here.
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