Adviser guide to equity release

Transcription

1 November 2017 Adviser guide to equity release Section 4: Completing the Advice Process The Adviser Guide to Equity Release is a guidance framework only. Advisers must always refer and adhere to the regulatory regime set out in the Financial Services and Markets Act 2000, and the FCA Handbook. Use of this guide does not alleviate any responsibility or obligation to follow the regulatory regime set out in statute and secondary legislation. For more information on regulatory standards, please contact the Financial Conduct Authority, or visit their website The Equity Release Council will not be held responsible for regulatory breaches incurred by firms relying on this guide for FCA compliance purposes. Created and sponsored by Retirement

2 Contents Analysis 3 Research 4 Research tools 6 Suitability 9 2nd appointment process 11 Advice process 13 The Equity Release Council : Adviser Guide 2

3 Analysis Analysis of Fact Find As with any advice, the advice you give can only be as good as the information gathered in the fact find, the research undertaken, and the analysis of that research in relation to the client s stated needs and wants. Equity release is no different, but offers some crucial differences and points to consider. You will very likely end up with several requirements from a client which effectively becomes a "best of all worlds scenario" but unfortunately not all products are aligned in such a way, therefore you need careful analysis of the real priorities and as such need to prioritise the client s needs and wants, and try to align the research in order of these priorities. Adviser Toolkit: Fact Find Example Client requirements Your client s individual circumstances, needs and wants vary, therefore it is important to consider which are the most important decision criteria for each individual case. Bear in mind that often there are several important criteria, which should be considered in order of client s priority: Your client may want the cheapest deal so a decision is made on the basis of the offered rate and fees. Your client may be looking for the security of fixed early repayment charges (ERC's). They may wish to leave an inheritance to the family in which case, a product which offers an equity guarantee or a means of servicing the interest could be selected. Your client may need flexibility to take more cash in future so no restrictions on future drawdowns are important. They may have a need to take the most money they can get now and in the future so a product offering a high LTV should be selected. Your client may want to take an initial lump sum but with a facility to take more later in which case a drawdown product may be the best solution. All of these are available in the market but not all from the same provider. So, you need to consider which of these are the most important, which are second and so on, and which provider satisfies most of these requirements and/or satisfies them in order of priority. The Equity Release Council : Adviser Guide 3

4 Things to bear in mind This is a much more advised process than a traditional mortgage, particularly as you have to take into account the client s pension status, benefits status, investment holdings (if any) and IHT liability, so creating a very detailed report from your analysis is crucial. Fortunately, help is at hand with some of these aspects from the Government s pension agencies and companies such as Fintal and Equibus for help with benefits calculations. It may well be often the case that you do not choose the company that comes out on top of an lress or assureweb research report, as the default placement is likely to be either rate or LTV derived, and may not match your clients priorities closely enough. When rates differ slightly by marginal basis points and LTV's differ by only a small percentage of 1 or 2%, it is most important to consider the whole offering and solution that proves "best advice" rather than just this one particular aspect. You also need to consider in your analysis the requirements set out by the FCA such as the possibility of downsizing or taking in a lodger, all of which are aspects of analysis that you must consider before creating your advice and detailing it in a suitability letter. We have included example suitability letters covering these aspects for you to use in the document library of this document but it is up to you to keep them up to date and note any changes that the FCA requirements may bring. There are some other simple key points in the checklist in the suitability advice guides in the document library section that again should help you in your analysis. Remember One thing to be careful about when analysing research is that some providers quote monthly rates and others quote annual rates, so be careful to compare on a "like for like" basis. Research Research tools Before applying for an equity release product you should consider the different grants and benefits your clients may be entitled to claim. These tend to be differentiated by those that are means-tested and those that are not. It is the first category that is of greatest interest when considering an equity release product, as depending on the interpretation of the government towards the release of equity from the home, this may have a direct bearing on entitlements. amount may be excluded from the assessment (receipts must be supplied to back up the expenditure). If it is for lifestyle reasons it may be treated as income. The Council of Mortgage Lenders worked with Ferret Information Services to produce FINTAL for lenders and intermediaries to use to assess the impact of different schemes on an individual's tax and benefits, and as a member of the ERC they have continued to develop their data to support the sector. Broadly speaking, if the money is used for needs related purposes i.e. a necessary home repair or improvement, then the capital relating to that For further information on Ferret systems, please visit The Equity Release Council : Adviser Guide 4

5 Whole of market You will be able to offer products from all of those providers who deal through Intermediaries. In addition, you should be aware of special terms that may be available to you via your Network or mortgage club. Research software Research cannot truly be undertaken without the use of an appropriate sourcing system. Amount to raise this can be a lump sum, income or regular payments (drawdown). Product Options the type of scheme can be limited to lifetime mortgages (with certain interest rate options or home reversion products). Impaired life rates can be included and capital protection can be added. You are then presented with a results table where you can view interest rates and other details for Lifetime Mortgages and Home Reversion products. As a part of your research you may wish to consider using Iress/Exchange Research Software or Assureweb Equity Release Research Software (the majority of Lifetime Mortgage products and Home Reversion products are included on both), or MoneyFacts or Defaqto although the latter two are only updated on a monthly basis. Click on Comparison Report to generate a PDF document detailing the results. You can enter your and your client s details to appear on this report. Save this report or print it directly from the PDF document for your client. Click on Start Again to amend your inputs. Both Iress and Assureweb Research Tools use the same format To compare products you need to enter information on selected screens: About Your Clients basic client information. If your client has any medical conditions that might mean they get enhanced rates (assuming a higher LTV is needed). Click on any product name in the results table to drill down into further product information and links to provider literature and in some cases their website. For lifetime mortgages clicking on Annual Table, this will display a screen where you can see how much interest will need to be repaid on the mortgage and the effect of the value of the residual estate depending on house price growth. Property Details including clients estimation of value (please ensure that your clients expectations are managed in the current property environment) and any mortgage outstanding. The Equity Release Council : Adviser Guide 5

6 Research tools Iress (previously The Exchange) The iress service provides detailed searches, including the provision of lump sum products, drawdown products, and impaired life products as well as a many of the differing product features many of these products can have. Simple searches to return the maximum loan amount available from each provider, or the best rate or feature delivers a ranking of providers to aid in the decision process and enables an adviser to substantiate their advice and recommendation, having first identified the customer s initial loan requirements, use this search to display all providers who will meet the customer s requirements. If the customer has a defined need for regular payments, your search can then be enhanced to include flexible products that allow drawdowns at regular intervals. Finally, if the customer would like the benefit of a flexible cash reserve for further potential payments, but unable to state when this will be drawn down, providers who meet the reserve will be displayed. Assureweb Assureweb aims to help intermediaries improve their service, efficiency and profitability by doing business online. Assureweb has a clear focus to expand its provider and product coverage, as well as developing new services and solutions for advisers and partners. New features are continuously being added to the portal, such as an equity release comparison tool allowing advisers to get free quotes and access products from a panel of equity release providers. The presence of the ERC logo means users can be sure that products go beyond FCA regulations to meet the higher standards required by the company. The Assureweb portal and hub are designed to integrate with existing front and back office systems. The Equity Release Council : Adviser Guide 6

7 Obligation of the adviser To reach the point where you are able to make a recommendation to your client you will have: Gathered facts regarding the client needs and circumstances Ensured the client has confirmed he will suffer no detrimental effects from loss of benefits by proceeding with this lifetime mortgage. Researched the market place for a mortgage contract that meets these requirements You are under an obligation to recommend the most suitable contract from the range available to you having taken into account the needs and preferences of the client. Rejected recommendations If a client rejects your recommendation, you are able to recommend another regulated mortgage contract as long as it meets the client s stated needs and preferences. The fact that a secondary recommendation had been made, the reasons why and acceptance of the client must all be recorded in the Suitability Letter. If a client rejects all the recommendations you have made you should close your mortgage related dealings with that client and mark the file accordingly. Home Reversion Schemes consideration In order to establish whether a Home Reversion Scheme needs to be considered, you must evidence: Whether the customer's requirements meet the eligibility criteria for the regulated lifetime mortgage contract (for example, the amount that the customer wishes to borrow, or the loan-to-value ratio) or a home reversion scheme; The customer's preferences for his estate (for example, whether the customer wishes to be certain of leaving a bequest to his family or others); The customer's health and life expectancy. The customer's future plans and needs (for example, whether the customer is likely to need to raise further funds or is likely to move house); Whether the customer has a preference or need for stability in the amount of payments (where payments are required) especially having regard to the impact on the customer of significant interest rate changes in the future; and The Equity Release Council : Adviser Guide 7

8 Whether the customer has a preference or need for any other features of a regulated lifetime mortgage contract or a home reversion scheme. Attitude to risk as these products carry a potentially higher risk than Lifetime Mortgages. For example, if the customer dies or goes into long term care soon after taking out a home reversion product, the cost would be much more expensive. A 100% home reversion product on a 250,000 property would get a 65 year old 100,000. As this 100,000 was for 100% of the property, if the customer dies the next day it would be a very costly transaction for the estate. If the customer feels that he will live a long time, then this cost becomes closer to that of lifetime mortgages. Affordability An adviser must explain to the customer that the assessment of whether he can afford to enter into a regulated lifetime mortgage contract is based on: Current interest rates, which might rise in the future; and The customer's current circumstances which might change in the future. Information that the customer provides about his income and expenditure, and any other resources that he has available. Debt consolidation Where the main purpose is to consolidate existing debts, the adviser must also take account of the following, where relevant, in assessing whether the regulated lifetime contract is suitable for the customer: The costs associated with increasing the period over which the debt is to be held. The costs associated with swapping from simple interest to (potentially) compound interest. Generic information It is possible to provide a client with generic information regarding Lifetime Mortgages. However, if information is given relating to the specific amount the client wishes to borrow, the intermediary must tell the customer that they have the right to request an illustration on any regulated mortgage contract which the firm is able to offer the client. The intermediary must also give information on the product range they are able to offer. For example, the written statement you can generally borrow up to 27% of the value of your property on most Lifetime mortgages is permitted. However the written statement you can borrow 27% of the value of your property on the XYZ Lifetime mortgage would require you to inform the client of their right to request an illustration. The Equity Release Council : Adviser Guide 8

9 Suitability Template letters Suitability advice guides Suitability Letters are considered best practice since they ensure that the FCA requirements for record keeping and providing the client with a written summary of all aspects of the sales process are met. The FCA does not prescribe that advice must be given in the form of a suitability letter, but does require firms to keep adequate records of: 1) The customer s information, including that relating to the customer s needs and circumstances that are obtained in the fact find process. 2) The reason why a firm has concluded that the advice given to a customer complies with the suitability requirements demanded by the FCA. 3) Records must be kept for a minimum of 3 years from the date on which the advice was given. Given these requirements, it seems prudent that this can be accomplished by a Suitability Letter alongside the mandatory KFI documents and a copy is retained by the advising firm for its regulatory record keeping. The FCA have specified that the following terms must be used in correspondence and other client communications: An Equity Release mortgage must now be referred to as a lifetime mortgage or home reversion product Content of Suitability Letters As shown above, the KFI must provide a very clear, consistent summary of the key points of the type and cost of the mortgage, including any fees payable. The suitability letter should be sent prior to the receipt of a completed application form, as it advises the customer of the recommended product and respective application form which they will then need to complete. The suitability letter is arguably the most important document, as this will confirm to the client not only why recommendations have been made, but also why any recommended products are considered suitable to the clients' circumstances (present and future) and how objectives will be achieved as a result of the recommendations. It is highly probable that a client, if asked, could very well explain why a contract was set up, in the days or weeks after receiving the mortgage offer. It is much less likely that the same client could do this, some, 2 years or more after the event without referring to the appropriate suitability letter. A high quality Suitability Letter will contain enough information and can be phrased in such a way to allow that same client to read through it again, irrespective of the time lapse, and immediately understand what it is they have and why they have it. Adviser Toolkit: Suitability Report Example The Equity Release Council : Adviser Guide 9

10 The following should always be covered: The reasons why the loan is being applied for (be as specific as possible). The reason why you have recommended a specific product for your client. The benefits of any capital/income generated from the Lifetime Mortgage or reversion scheme must outweigh any adverse effect on the client s entitlement to means tested benefit and/or the client s tax position. You should confirm that you have provided clients with the opportunity to seek expert tax and benefits advice before they entered into a lifetime mortgage or Home Reversion. Alternative methods of raising the required funds (including normal Interest Only Mortgage, Home Reversion Schemes and Local Authority or other grants) are proven to be less suitable. You should make your recommendations in the knowledge of, the client s situation and attitudes toward: The impact on their estate of the lifetime mortgage. The client s health and their life expectancy. The client s future plans. Reduction in asset (property) value for later use i.e. long term care funding etc. If the adviser has insufficient knowledge of the range of alternatives to a regulated lifetime mortgage contract, or the means tested benefits and tax allowances, then they should refer the client to a source for such information. The outcome of the discussions on all these issues must be recorded in the Suitability Letter. Prominence of relevant information can play a key role in ensuring that a communication is clear, fair and not misleading. Where this is the case, the adviser must consider prominence in the context of the communication as a whole. Use can be made of the positioning of text, background, and text colour and type size to ensure that specified information meets the requirements of the rules. Consequentially, suitability letters (and other customer correspondence) must not be formatted in any way that diminishes the prominence of the requirements in the previous sections, or any other FCA regulatory requirement. Inappropriate wording (i.e. wording of no relevance to the client circumstances) within the suitability letters can also cause the prominence of FCA regulatory requirements to be diminished. A copy of the suitability letter should be printed onto headed paper and sent to the clients to sign and date. The original suitability letter signed and dated by the client, must be retained on your client file, and a copy sent to the client. Additionally you should also: Consult with other family members where appropriate (at advisor s discretion) and with permission from the client. Advise that independent legal and benefits advice is taken. You may wish to only recommend schemes where the lender is a member of the Equity Release Council organisation. Reasons for using a non-erc member and what this means in terms of protections/guarantees not offered, should be clearly documented. The Equity Release Council : Adviser Guide 10

11 2nd appointment process Re-cap and gain commitment Discussion of KFI and Suitability Letter Asking for the business Objection handling where required Re-cap & gain commitment As with any two call process, at the beginning of the second call it is important to re-affirm the discussions from the first call to remind both parties of what was agreed and to set the agenda for the second meeting. With regards to equity release, it is also important to check for any changes, as in many instances the clients will have spoken with their family and or revised what they need their money for, and this may change the advice you are about to give. It is however most important to reaffirm the features and benefits of equity release products in relation to their needs, focussing on the benefits and the impact it will have on the quality of their life. By confirming this you are effectively agreeing that the presentation you are about to give will (as long as it matches the clients needs and requirements) result in the client going ahead. Key facts illustrations The FCA require all advisers to give consumer product information in a set format called a KFI, at specific stages of the equity release sales process. A KFI must be provided at point of recommendation and fully explained to the client before the application for the recommended mortgage is submitted. You should provide either a paper copy or an document that can be printed. You must provide a client with a KFI in the following circumstances: When you recommend a particular Lifetime Mortgage or Home Reversion product. When you provide written information that is specific to the amount that your client wishes to borrow and the client requests an illustration. If the client requests written information that is specific to the amount that they wish to borrow. The KFI should clearly show all fees, including the broker fee that you charge. It should also set out the amount of commission that you will be paid by the lender. You must not complete an application for a mortgage, or accept any payment that would commit a client to a particular mortgage, until the client has received and reviewed the KFI. Adviser Toolkit: KFI Example The Equity Release Council : Adviser Guide 11

12 Accuracy If you obtain a KFI for a client from a lender, you are responsible for its accuracy but you can reasonably rely on the information given to you by a lender to be accurate. A tolerance of 1% or 1 (whichever is the greater) applies to some figures on the KFI, where you do not get them from the lender. You can rely on a third party, such as a mortgage sourcing system provider, to provide you with KFI s that meet this tolerance and still comply with the rules on accuracy. However, you must be able to show that it was reasonable for you to rely on this information. To do this, you must conduct a test of reasonableness on every KFI from a mortgage sourcing system provider to, as far as you are able, verify that the KFI is accurate. Remember that it takes approximately three months to complete an equity release product giving the client plenty of time to change their mind but remembering that they will incur costs, so it is better to deal with any concerns or issues before completing an application. Remember! If a recommendation is made over the telephone, then it is best practice to send a written suitability letter and KFI within 5 working days. Content of the KFI You must have a good understanding of the content of a KFI. Confirming client intentions to proceed The question must be asked "would you like to go ahead?" or "shall I complete the paperwork?" for example. Adviser Toolkit: General Objection Handling The Equity Release Council : Adviser Guide 12

13 Advice Process Application What happens next Solicitor options Referrals Client application The client now needs to (as appropriate): Provide proof of identity and proof of residency. Pay any valuation or service fees applicable. You should supply your clients with the following: Copy of client signed Fact Find (marked as client copy). Client Fee Agreement (marked as client copy). Copy of KFI for clients records (marked as client copy). Ideally, a suitability letter should be issued prior to the customer sending back an application. The customer should sign and send back the suitability letter alongside the application to evidence that they have received and understood your recommendation. If the results of the valuation report necessitates that your advice changes, this can be evidenced in a secondary letter, sometimes called a material change letter, to evidence the change in circumstances and the resulting recommendation. What happens next Application completed Application sent to provider Valuation instructed Valuer visits client The Equity Release Council : Adviser Guide 13

14 Solicitor guidance notes These notes are designed to provide you with practical guidance as to how you can work with your clients solicitor for Equity Release. On confirmation from your clients that they have accepted your recommendation and they wish to proceed with the equity release, you will ask them which solicitor they wish to use. They may decide to use a solicitor already known to them but not known to you. The Law Society and the Solicitors Regulatory Authority (SRA) produced some Equity Release Guidance Notes Nov05 to assist solicitors. These Notes state that It would be wrong to assume that equity release schemes only require an understanding of conveyancing practice. The SRA also produced the Solicitors Code of Conduct (see SRA website - code/content.page ) which includes the following extract - Chapter 1: Client care Outcomes You must achieve these outcomes: O(1.4) you have the resource, skills and procedures to carry out your clients instructions. O(1.5) the service you provide to clients is competent, delivered in a timely manner and takes account of your clients needs and takes account of the clients best interest. Therefore the SRA have clearly indicated that equity release requires more than conveyancing knowledge, and if the solicitor lacks competence to deal with an equity release instruction, then he/she should refuse to act. It is therefore suggested that, you (the adviser), with the client s permission, telephone the client s solicitor regarding your client s intentions as follows Confirm that your client has instructed you that they wish to proceed with a lifetime mortgage where you have made the recommendation; Confirm that your client wishes to instruct the solicitor to act for them; Confirm that the solicitor is happy to act for the client and that the solicitor has had experience in dealing with equity release conveyancing; It is also important that your client is made aware of the fees to be charged for the conveyancing, and normally these would be disclosed to the client when the initial discussion regarding the instruction takes place; If the solicitor is not happy to deal with the instruction, then you may wish to confirm this to your client, and suggest that they consider selection from other options available (The National Solicitors Network or the Equity Release Solicitor s Alliance (ERSA)). Once the solicitor is appointed you may wish to confirm the advice process, the offer period, refer to any terms and conditions in the offer, and ensure that the solicitor is happy with completion of the solicitor s certificate. To assist the solicitor with the completion of the solicitor s certificate, with the clients permission, you may wish to forward a copy suitability letter, highlighting the paragraphs within the letter that refer to the points included on the Solicitor s certificate opportunity to discuss with beneficiaries, opportunity to discuss state benefits entitlement with benefitsspecialists, that the product is suitable for the clients, security of tenure, a fixed interest rate and the effect of accrual of interest. The Equity Release Council : Adviser Guide 14

15 You may also wish to agree a target completion date with the clients solicitor to ensure that completion takes place within the offer term (usually 45 days). The offer will include reference to the terms and conditions of the mortgage, and clients solicitor should ensure that The Solicitor s certificate is signed and returned to the provider s solicitor before completion; All terms and conditions outlined on the offer document have been met; For freehold property, documents disclosing good and marketable title to the property are forwarded; For leasehold property, the client must have the right to assign the lease, and the residue of the term of the lease must be more than 80 years; Proof of adequate buildings insurance. Asking for referrals Why ask for Referrals? referrer that you offer a worthwhile product with an exemplary service. This enhances your credibility and will help to establish an immediate trust and rapport between you and the new client. Referrals are a cost effective and efficient method of increasing your client base and have the potential to greatly expand your business. Referrals made by existing clients are invaluable. People who have been referred by existing clients often approach a meeting with the desire and expectation of conducting business. Furthermore, the referred client will have been told by their Adviser Toolkit: Customer Referrals Summary Fact find meeting When discussing equity release ensure that you cover: If your clients have savings or investments that could meet any expenditure. Your clients property and whether they plan to move or sell their home in the future. The potential impact on current/future means tested benefits. Whether they want to retain ownership of their property or whether a home reversion product would be suitable. Whether they wish to leave an inheritance. Whether options other than equity release might be more suitable for them. The impact on their tax position. Whether they want to release more money in the future. Whether they have discussed their plans with their family. That they must contact their solicitor about their plans. Product illustration To produce an illustration: Contact the lender to request an illustration or complete online (if available). Confirm borrowing amount required and estimated property value. Once created, illustrations and a partially populated application form can be printed out. The Equity Release Council : Adviser Guide 15

16 Post fact finding meeting Talk your clients through the application process and how long it typically takes. Explain the personalised key facts illustration and explain the features and risks of the product recommended. Discuss which option suits their circumstances. Complete the application form. Take their proof of identity (birth certificate, passport, medical card or driving licence) and solicitor s details. Complete the debit card details for the arrangement fee and property valuation (if applicable). New business submission Submit application to the lender. Valuation Your client will receive a call confirming receipt of application and fee, and that surveyors will contact them to arrange a valuation. Your clients will be sent written acknowledgement of their application from the lender. This letter will explain that the valuers will contact them to arrange a valuation of their property. Offer and completion Confirmation of your client s acceptance will be sent to you by . Inform your client that an offer will be sent to their solicitor shortly. Ensure your client meets their solicitor and signs and returns their acceptance form, in order that we can open their product. A letter will then be sent by the lender advising you that the case has been completed. Your fee will be sent by BACS and detailed in your commission statement. Money transferred to solicitors for release to client. Most lenders will keep you informed of progress via , providing confirmation to you throughout the process, from receipt of application through to completion. Adviser Toolkit Back to main menu The Equity Release Council : Adviser Guide 16

17 Created and sponsored by Retirement 3rd Floor, Bush House, North West Wing, Aldwych, London WC2B 4PJ Tel : THE EQUITY RELEASE COUNCIL IS A TRADE ORGANISATION THAT REPRESENTS THE EQUITY RELEASE INDUSTRY. NOT ALL PROVIDERS, ADVISORS, SOLICITORS OR SURVEYORS ARE MEMBERS OF THE COUNCIL. TO MAKE SURE YOU ARE DEALING WITH A GENUINE MEMBER LOOK FOR THE LOGO AND SEARCH OUR WEB SITE UNDER MEMBERS DIRECTORY. THE EQUITY RELEASE COUNCIL IS NOT AUTHORISED TO GIVE OR OFFER ADVICE TO CUSTOMERS. The Equity Release Council, formerly Safe Home Income Plans is a company limited by guarantee and registered in England No The company is not authorised under the Financial Services and Markets Act 2000 and is therefore unable to offer advice.