Key findings of multi-firm work on later life mortgage advertising and advice.
Introduction
We focused our attention on the equity release market where complex products are sold to customers, particularly customers with a higher risk of being in vulnerable circumstances. It is essential these consumers are fully informed and receive suitable advice that has taken account of their individual circumstances.
Who this applies to
- lifetime mortgage advisers
- lifetime mortgage providers
- consumer groups
- consumers
What firms need to do
Firms should review our findings and act immediately where they need to.
Why we conducted this review
Lifetime mortgages, overwhelmingly the most popular type of equity release product, cater to those who want to use the value in their home to meet their later life needs.
Given the significance for consumers of the decision to use a lifetime mortgage, we set out in our 2022/23 business plan[1] work to ensure the market is working well. This included following up on our earlier findings[2] about poor quality advice and checking that standards among intermediaries have improved.
There is a potential risk of harm to consumers if promotions are unclear or not balanced, or if advice is unsuitable or contrary to the consumer’s best interests.
Our approach
In this multi-firm work, we reviewed sales and advice processes, customer outcomes and financial promotions of intermediaries responsible for around half of all lifetime mortgage sales.
Where we have found that standards have fallen short, we are intervening robustly with firms to ensure significant improvements in their advice processes.
We remind firms that poor quality advice is unacceptable and that we will continue to review this market.
Firms that are in breach of our rules and do not meet our expectations should expect further regulatory focus and intervention.
Summary of our findings
Financial promotions
Financial promotions can significantly influence consumer understanding of the later life lending market, and of the options they have available. Despite clear and long-standing rules our review found many:
- inaccurate or misleading promotions
- product benefits being highlighted without any balancing description of the risks
- firms using their FCA regulated status in a promotional manner
As a result of our review, almost 400 financial promotions have been removed or amended where firms identified issues with them.
Suitability of advice
We have previously emphasised that to deliver suitable advice and help consumers make informed decisions, firms need to:
- personalise advice
- challenge customer assumptions
- have the evidence to support the suitability of advice
We were disappointed to find evidence of firms not acting on our previous findings. We found many examples where intermediaries were:
- poorly considering borrowers’ income and expenditure
- minimising discussions around alternatives
- incentivising sales potentially at the expense of quality advice and good customer outcomes
- steering outcomes in favour of lifetime mortgage products
As a result of our work and subsequent interventions, all the firms included in our review have made changes to their sales and advice processes. The majority of firms also changed how they incentivise advisers. We expect other lifetime mortgage advisers to pay close attention to the review's findings and act immediately where they need to. Anyone who believes they were poorly advised can complain to the firm and, if they are dissatisfied with their response, to the Financial Ombudsman Service.
We will also be considering our findings in conjunction with those of the retirement income advice review[3], which is currently ongoing.
The Consumer Duty
With the Consumer Duty now in force, all firms should be focused on putting consumers at the heart of their business and delivering good outcomes. Firms should assure themselves that they are complying with the rules:
- the Consumer Principle, which requires firms to act to deliver good outcomes for retail customers
- the cross-cutting rules for firms to act in good faith towards retail customers, avoid causing foreseeable harm to retail customers, and enable and support retail customers to pursue their financial objectives
- our outcomes rules on the design of products and services, price and value, consumer understanding and consumer support
Our Expectation
In combination, the Consumer Duty and our detailed rules mean that lifetime mortgage advisers must:
- consider the information needs of consumers and communicate in a way which is clear, fair and not misleading, so that consumers are likely to understand communications
- assure themselves that consumers get appropriate information about the overall proposition, in a timely and understandable format, to enable them to make effective decisions
- gather all relevant information to tailor advice to the consumer’s needs and circumstances ensuring recommendations are suitable
- ensure balanced conversations and disclosures of the availability of alternative options
- ensure that commission received from providers is not prioritised over customers receiving good value. Any advice or arrangement fees should provide fair value to consumers and not cause the overall transaction to be poor value
- have appropriate processes to manage potential conflicts of interest and the risk of bias
- monitor and regularly review the outcomes their consumers are experiencing in practice and take action to address any risks to good customer outcomes