January 2008

A last resort no more

The phrase "booming market" has certainly been underused in our industry in recent times. However, when you look at the sales of equity release products over the last five years, "booming" is the only way to describe it. According to Safe Home Income Plans (SHIP), business has grown from just £572 million in 2001 to £1.1 billion in 2006 and people in retirement are believed to hold somewhere in the region of £1.1 trillion of equity in their homes.

There are several drivers for growth in this market, not least the fact that today average property values are nearly nine times the value of average pension funds.

Clients' attitudes to inheritance have changed over recent years, with more people - often referred to as "SKI'ers" (spending the kids' inheritance) - prepared to use their property as their pension. The realisation that retirement for many could be a very long period and the desire to enhance their quality of life has led to an increased need for equity release solutions.

Understanding equity release

Advisers have shown a strong desire to understand all aspects of equity release and to provide the best solution for their clients. There is support and help available to advisers considering entering this lucrative market that demonstrate how easy it can be to write equity release business profitably within a compliant sales process.

Following its recent mystery shopping exercise, the FSA stated that it did not recommend that firms "dabble" in this market. Moreover, it suggests that advisers should either become "specialists" and hold a suitable qualification or refer any enquiries to a specialist. There are several options open to advisers to help them get the best deal for their clients and their business.

Nothing new

Qualification requirements for certain areas of financial services business are nothing new. Study for examinations can improve the understanding of the adviser and increases the chances of covering all aspects of the client's situation, thus reducing the possibility of disappointment at a later date. Members of SHIP believe that structured training programmes, qualifications and licensing can create a virtuous circle that will improve prospects for the market, since they will help ensure that any advice given is robust.

This avoids the need for large-scale reviews in future that do nothing to enhance the perception of the industry among the public. To this end, a series of industry roadshows are being run called the Marketing Equity Release Forums which are co-sponsored by three of the big name players in the market: Just Retirement, Bridgewater and Stonehaven. These are generic sessions which show advisers how to get into the market and demonstrate best practices. They do not cover products, but focus more on the sales process.

Who are the potential customers?

Despite the fact that coverage often refers to equity release as a "last resort," there is considerable potential for its use with those who simply wish to make themselves more comfortable in retirement and are open to the concept of using their house as an asset to generate income or cash.

These people may already be your clients and include:

- Those in income drawdown (or Unsecured Pension) looking to draw "income" occasionally from other sources to smooth out extremes of investment volatility

- Those with level annuities who have been retired for some time and may wish to increase their income to catch up with inflation

- Those at retirement who have enough to live on from their pension but want more with single or regular injections of cash or an increased income.

Simply looking through your client bank for people in these categories could yield significant results, as could talking to those who come to you for advice on buying an annuity.

Depending on results from this exercise, you may like to consider advertising locally, specifically to people looking to boost income in retirement. Adverts or placed articles in local papers can reach the right people for little cost.

Naturally, there are alternatives which need to be considered, just as there are in almost every aspect of financial planning, and equity release may turn out to be inappropriate for a high proportion of those you approach. Even in these cases, however, you may uncover other needs requiring advice.

Paul Cowman
Head of Equity Release and Protection
Just Retirement