Firms must do more to ensure advice is appropriate

Jun 28th '20

That’s the conclusion of a recent FCA review on practices surrounding equity release.


Releasing the findings of the review on 17 June, the Financial Conduct Authority said that ‘Firms must do more to ensure they are always giving appropriate advice to equity release consumers’.


As demand for later-life lending has grown in recent years, equity release has become an increasingly attractive option for some people, enabling them to unlock wealth from the value of their home. And while the regulator’s review showed that equity release is working well for many people, it also highlighted some areas of concern.


Why is the FCA concerned about equity release advice?

The regulator’s review highlighted three significant areas of concern:


  • 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;
  • Firms weren’t always able to evidence that their advice was suitable.


The FCA says that the failings seen in these areas ‘increases the risk of harm to consumers’. The long-term financial impact of equity release, as well as some of the costs involved, can be significant – and the financial impacts of the coronavirus are likely only to exacerbate this.


Releasing the results of the review, the FCA’s Executive Director of Supervision, Retail and Authorisations, Jonathan Davidson, said that:


It is…critical that advice offered to consumers looking at lifetime mortgages is suitable to their personal circumstances. It is clear from our review that advice being offered to such consumers, including some vulnerable consumers, is still not up to scratch.

All firms offering these products should read our review and take action to make sure consumers are receiving advice tailored to their personal circumstances.’

How can you up the suitability of your advice?

Suitability and appropriateness are key elements of the FCA’s requirements, and are clearly areas where some of the firms examined in the review fell short.


One of the 6 consumer outcomes the regulator expects financial services firms to deliver on is that ‘Where consumers receive advice, the advice is suitable and takes account of their circumstances’.


Another desired outcome is that ‘Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly’. When it comes to the targeting part of this, some parts of the equity release market seem again to have failed.


So – what steps can you take to ensure your advice – whether on equity release or other products – meets the required standards?


6 steps to improve suitability


  1. Examine your firm’s culture. As long ago as 2016, we explored the idea that meeting the FCA’s standards on suitability is all about culture. And although a recent piece of research from the regulator suggests that measuring your corporate culture may not be the magic solution many businesses hope for, implementing actions that move you towards a more compliant culture can only have positive effects.
  2. Part of this cultural overhaul may involve making compliance procedures more central to your processes. This might mean giving everyone accountability for compliance; we’ve looked before at why compliance should be everyone’s responsibility.
  3. Encourage greater collaboration between Marketing and Compliance. Often, people are tempted to shortcut the correct processes due to a desire to speed materials to market or avoid labour-intensive manual edits.
    Closer working between your Compliance team and Marketing – or other – teams producing promotional materials can help to get it right first time, creating a clearer understanding of what’s acceptable and will be approved without the need for time-consuming revisions.
  4. Familiarise yourself with the FCA’s 6 consumer outcomes – many of which centre around suitability and fairness. Work towards meeting these and more suitable advice should be a natural result.
  5. Ensure your marketing and communications materials are a fair and accurate reflection of your products. For regulated firms, robust and consistent Compliance team reviews are central to this.
    Mandating approvals before financial promotions are published will reduce the changes of non-compliant materials reaching the market.
    Some firms have found that introducing an element of automation can help here, making the Compliance approval process non-negotiable as well as simpler, faster and more robust.
  6. Keep control of your financial promotions. Sign-off is essential, but when it comes to having rigour around your marketing activity, it’s not the whole story. If a ‘rogue’ advert or promotion is issued by mistake, are your processes geared up to respond?


Not just to retract any future instances of the non-compliant material, but to evidence that you had the correct review and approvals process in place, with an FCA-compliant audit trail to prove it.


And, importantly, to ensure that you can demonstrate that any shortcoming was a one-off rather than a systematic failing. In the US, new guidance from the Department of Justice mean that prosecutors are able to take into account ‘the adequacy and effectiveness of compliance programs’ and ‘the nature and thoroughness of the company’s remedial efforts’ when deciding on an appropriate penalty for shortcomings.


In other words, the system will now recognise that, while 100% compliance can be difficult to achieve, if a firm has a robust system in place for checking and approving promotions, it will help to demonstrate that any failing was atypical and that the firm is taking steps to improve and minimise future risk.


Ensure your advice is appropriate

If you want to read more about the FCA’s review into the equity release market, you can see the full review on the FCA website. You can read more tips in our blog on How to improve the suitability of your firm’s financial advice.


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