Chris Prior is manager sales and distribution at Bridgewater Equity Release
It’s very rare that a financial decision will only have consequences for one individual and in particular this is even more so when it comes to equity release.
Many advisers will know only too well that a failure to involve immediate family in the advice and recommendation process can come back to bite them and, even if the client has specifically outlined they do not want their family involved in the process, it is obviously important to document this.
The fact is that when it comes to the biggest asset an individual is likely to own there could be any number of interested parties who have a vested interest in what happens to that property.
Some family members might have spent many years expecting to receive a property as an inheritance, or a share of the proceeds, only to find that those who own the property have utilised equity release and have used up all or a proportion of the value before they pass away.
Having talked to many advisers about situations such as this it is often a ‘family minefield’ to walk through however we should never forget that we are acting on behalf of the client’s wishes, and while the family should be encouraged to be involved and hopefully agree with the decision, it should not be a show-stopper if the client wants to go ahead.
This is what makes equity release a far more sensitive and subtle advice process than what you might find with many other products. Indeed, a ‘soft skill’ and nuanced approach is vitally important particularly as we have different criteria and processes to work through depending on whether it is a home reversion plan or lifetime mortgage.
For example, with a reversion plan when a client passes away or is moved into long-term care it will be the provider who takes control of the sale in conjunction with the family.
This can come as a surprise to family members especially when the client’s estate still owns a percentage of the property. A family member may object to the provider taking control of the sale even though this was clearly part of the plan’s terms and conditions. Even if the plan is non-regulated, there is the possibility of involvement of the Financial Ombudsman Service and it is therefore important that the approach one takes can stand up to the scrutiny of third parties.
Often, complaints from family will centre around the client’s capacity to have made a decision to release equity from their property in the first place.
This type of complaint shows the importance of strong paperwork from both an adviser and provider. I know of a recent case where the family claimed their late father did not have the mental capacity at the time to enter into his lifetime mortgage.
Both the adviser and provider files were investigated and it became clear that, even though the gentleman was 80 years old at the time, he showed all the hallmarks of being a highly capable individual – indeed there were a collection of emails and faxes on file from the gentleman concerned which showed he was in full possession of his faculties and was completely aware of what he was doing.
Other complaints might be registered from distant family members who still feel they are entitled to a share of the estate, particularly the house.
Again, I’m aware of a complaint from a relative who was not told the client had taken out a plan and was again suggesting there was some wrongdoing on the part of the adviser and provider.
The files told a different story with it being made clear that the client was estranged from the relative concerned and within the factfind the client had made it clear that his decision was ‘no-one else’s business’.
As can be seen from the above examples, without this type of information being documented within the client file, those complaining could have a case.
In this fully regulated world, the Financial Conduct Authority want all client files to tell the story of the case and if they are not able to understand why a recommendation was made then there are clearly going to be issues.
Advisers must make sure that all points are covered and they are able to prove at every step of the process that the client and (where appropriate) the family were always fully aware of the responsibilities of their actions and the potential consequences.
Without it being down on paper, we are all opening ourselves up to what could be significant problems.