FCA: Equity release advice not always suitable

Out-Law News | 24 Jun 2020 | 9:16 am | 2 min. read

The equity release mortgage market is working well for many customers, but issues around the suitability of some advice have been identified by a UK regulator.

Following a review of the equity release market, the UK’s Financial Conduct Authority (FCA) identified three significant areas of concern.

The regulator said advice given by firms did not always sufficiently take into account consumers’ personal circumstances; consumers’ reasons for looking at equity release were not always challenged by firms; and firms were not always able to provide evidence that their advice was suitable.

According to the review’s findings, the FCA had found examples of advisers largely adopting a “form-filling” approach to their fact finding and not taking individual's circumstances into account enough. The FCA said a number of case files it reviewed did not contain adequate evidence demonstrating the suitability of advice given.

The regulator went on to say firms need to take action to ensure they obtain sufficient information from customers to provide suitable advice, and collect and retain evidence that supported their assessment of the suitability of advice.

Financial services regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said: “It should not come as a surprise to firms providing equity release mortgages that the FCA’s review has highlighted areas of improvement for the market. Equity release plays a unique and important role in the lending market."

“However, the risks associated with these products can be high. When consumers are given unsuitable advice, it may have a life-long effect on their financial wellbeing. This issue is compounded as equity release customers may also be vulnerable,” Barber said.

Financial services regulation expert Rachael Preston of Pinsent Masons said the FCA expected firms to focus on the individual needs and circumstances of the consumer and, where necessary, challenge the consumer's preference for equity release.

“Advisers are expected to understand their customers’ needs and circumstances and explore whether an equity release mortgage is the right solution for the particular customer in the long-term,” Preston said.

“Firms must also keep accurate and detailed case files. These must be personalised to the customer – it is not enough simply to record responses in the form of tick boxes. The FCA wants firms to note the specific language and phraseology the consumer used – giving the file the customer’s ‘voice’,” Preston said.

“Practically speaking, firms should review their administrative processes and training programmes to ensure they are consistent with the FCA’s expectations. Firms that don’t consider the outcomes of this review, or that fail take steps to address identified areas of concern, can likely expect further attention from the FCA. Failure to address issues now may lead to increased complaints – and accompanying compensation payments – in years to come,” Preston said.

The FCA said the impact of the coronavirus pandemic on personal finances reinforced the importance of firms exploring the individual customers' needs and particular financial circumstances when they provide equity release advice.