Two-thirds of equity release advisers fail mystery shop
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Consumer group Which? revealed in April 2009 that it was undertaking a mystery shopping exercise into the quality of equity release at an event held by the Safe Home Income Plans group, reporting that the early findings had been disappointing.
The finished study, in which nine undercover researchers were sent out to get advice on equity release, has found that overall only five out of 12 equity release specialists passed its test.
It also found that only eight of the 28 independent financial advisors that were tested passed.
Which? says that overall, 23 advisers failed to conduct a fact-find on each customer to the expected standard and seven didn't even ask about the researcher's income.
Some advisers also failed to mention how quickly the debt would grow or discuss the effect of compound interest.
It says that one IFA told researchers that there was no chance of using up all the equity in the ‘customer's home “unless you live to 150”.
The consumer group 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.
Some advisers were also slow to disclose 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.
In response to the report, SHIP says that many of the shortfalls that Which? has found could be due to the process of explaining the product rather than to significant gaps in advisers’ knowledge.
But Andrea Rozario, director general of SHIP, recognises that continuous improvement is needed.
She says: “Although there are estimated to be over 7,000 people who have taken the specialist equity release exams, the fact that Which? has found issues with the processes of some of the 40 advisers reviewed shows there is absolutely no room for complacency.
“Advice is a crucial step in the equity release process - and with each client’s needs being highly individual and unique - one that should be closely monitored to ensure consumers are getting the best help possible.”
She also interpreted it as a step forward that Which? had criticised the process for advice, but not the actual fundamental outcome of that advice, nor the products themselves.
Rozario adds: “This is a step forward from last year when they branded equity release a ‘product of last resort’.”
Kevin Friend, strategic partnerships director at Mortgages.co.uk, says: “This is a prime example of where we went wrong before in the mainstream market and it’s been exposed now in the equity release market before it’s actually got out of control.
“But this report is not a true representation of the equity release sector in which the large majority of advice is given by established companies with robust proven sales processes and compliance.
“Too many people are trying to jump on the bandwagon without any knowledge of this specialist sector. It is difficult for SHIP to be justifiably criticised.
“I believe there’s very little room for new entrants in what is a sector that is currently suffering a 22% downturn in growth.
“What will happen is the more established and reputable specialist will get a bigger slice of a smaller cake in the short term and look to attract more business via different channels, for example, we are seeing a significant increase in online research and enquiries.”
