Going into battle with one hand tied behind your back
Sebastian Murphy (pictured left) is head of mortgage finance and Rory Joseph (pictured right) is director at JLM Mortgage Services.
There’s no doubting that quality advisers have recognised for some time that the one-off, transactional nature of mortgage advice has changed. In our view, to be successful in this market you can’t simply deliver mortgage advice alone to that client and ignore their other wants and needs, ignore their changing circumstances and that of the wider economy, or ignore the relationships they have and the goals/ambitions they have for the future.
In a sense, the mortgage should now be the door through which you might first walk before looking at the range of options available to a client, and the range of services they (and their family) require.
This latter point is most interesting because there is a far greater inter-connectedness between individuals and family members, not just in terms of the younger generation accessing the Bank of Mum & Dad (BOMAD) but also in terms of the way parents/grandparents might wish to support their offspring, and indeed the far greater need for later life advice, which as we know can cover a whole range of areas.
Inter-generational activity is clearly on the rise. We have a whole mortgage sector dedicated to helping family members support each other, specifically in terms of helping them get on the housing ladder. Whether it’s through a deposit gift, or a guarantor arrangement, or putting money aside into savings/bonds, those individuals who are fortunate to have family who will help them, clearly need the advice to go with it in terms of making sure they pick the correct scheme, the right product, and that everyone is clear about what they are signing up for.
Recent research from L&G showed how much BOMAD activity is growing, but also what is interesting – in light of the significant uptick in later life lending – is just how parents/grandparents are choosing to access the cash in order to support their kids/grandkids. In the L&G survey, 16% of all those BOMAD participants said they have (or would) release equity from their home to financially support them.
One would sense this is rather a big shift in recent years but the statistics around pension use are also enlightening. While half are using cash to support their kids, 9% cashed in pension lump sums, 7% used their pension drawdown, and 6% drew on their annuity income.
As L&G rightly point out, this could have significant consequences for retirement living, because over a quarter also said they were now not confident they had enough money to last throughout their retirement. It will not take a genius to work out the overwhelming need for advice for all participants in this scenario, and perhaps it will also not require much brain power to realise that options such as equity release might be serving these people better rather than having them dip into their pension reserves in order to help.
As mentioned, these types of cases can’t really be viewed as stand-alone, first-time buyer clients because there is so much more to it. Therefore, it’s absolutely imperative that every single advisory firm, at the very least, has access to products within this sector, whether via their own advice or through an introducer arrangement. Anything else, quite frankly, is a dereliction of advisory duty.
But the sad truth is that, some firms do not see this is as an imperative. Or if they do, they are in no position to be able to offer this. Take, for instance, the large numbers of networks active in our space who seem to go out of their way to hamstring their AR firms who might wish to present this type of quality, overall service, especially into later life clients.
These networks won’t even allow firms to consider moving into the equity release arena, for example, because of the perceived ‘high-risk’ compliance assessment placed upon it. Which sort of beggars’ belief given that one of the key reasons why you would choose a network would be to ensure they could provide the compliance peace of mind, coupled with the market opportunities, to allow you to service all types of clients. Especially in a sector where demand has grown considerably and where the future of your business could depend on you being able to offer this type of service.
In these politically charged times, we can’t help but remember Geoffrey Howe’s resignation speech to the House of Commons when he left Margaret Thatcher’s cabinet. He talked about the captain of a cricket team, sending their batsman out to the crease, only to find that the same captain had broken all their bats. Essentially, networks who do not provide a quality equity release/later life lending solution for their AR firms are setting them up to fail. No excuse is good enough when it comes to the reasons they give about why a firm shouldn’t be allowed to advise such clients in this area.
The irony of course, is that at the same time, these networks seem ultra-comfortable with their advisers being active in the RIO space even when they can’t possibly compare it with other options (such as equity release) and therefore can have no idea whether the RIO is truly the most suitable for the client. The compliance risk here seems far greater and you therefore have to wonder about the sanity of allowing this to occur.
We believe in offering our AR firms access to all the products and service needs they want, and where perhaps they might not have the expertise or regulatory authorisation required, we offer introducer options – for example to our specialist/equity release/later life intermediary firms – that mean the client always gets the best advice available and ensures they are accessing specialist services. This should not be about crow-barring a recommendation into an area just because you are able to advise on it.
AR firms need to be much more demanding of their network principals, especially in this area, in order to grow their advice offering. And if they are not able to do this, then ARs need to vote with their feet in order to get what they, and their clients, want and need.
If they do not do this, the risk to their business from future complaints and being wholly uncompetitive is high. You won’t just lose your clients, but also your competitive edge and coming back from that could be very difficult indeed.