RTBQ. Believe it or not, that is one of the best pieces of advice I have ever been given. Seriously.
It may look like a really unlucky set of Scrabble letters, but, in fact, it is a valuable life lesson that has stuck with me for more than 20 years.
It was given to me by a former sales manager of mine as we reviewed why I had failed to pass an industry exam. It turned out, as we came to a particular question on the actual paper I had sat, that I had leapt ahead to provide a clever answer to what was, in fact, a slightly different question to the one being posed.
“R – T – B – Q” my wise manager intoned, with a slightly incredulous and understandably frustrated look his face. I stared back, blankly – he sighed: “Read. The. Bloody. Question.”
Sometimes, it pays dividends to step back and ensure you understand the issues before forging ahead … that’s certainly true of exam questions. It’s also true when it comes to providing financial advice.
Take equity release, for example. A common concern for clients seeking a lifetime mortgage is the accrued debt – stories that appear periodically in the press criticising equity release often focus on how quickly the interest rolls up over time.
Concern that there will be no equity left in their house to pass on after their death can drive clients and their advisers in search of lower interest rates.
But in doing so, are they potentially seeking the wrong answer to the question “how can I ensure I pass on more of my home when I die?”
It is possible with some plans on the market to guarantee a percentage of a client’s equity will be passed on after they die (or move into long-term care) and the house is sold to repay the debt.
These ‘guaranteed inheritance features’ work by protecting an element of the loan a client leaves untouched.
For example, David qualifies for a lifetime mortgage of £100,000 on his home with a more 2 life plan.
He decides, however, to only take £50,000 of this as an initial advance.
With a guaranteed inheritance feature, 50% of his home’s value – equal in percentage terms to the 50% of his LTV he left untouched – will be protected and passed on to his estate when he dies regardless of how long he lives and (therefore) how big his debt becomes.
So even if the debt on his loan grew to match the value of his home at the point of sale, 50% of the house’s value would still be paid out to his estate.
So, if his home was sold for (say) £200,000, his estate would get at least £100,000 regardless of the amount of the outstanding debt.
Under the bonnet
During a recent stint of retirement lending seminars around the UK where we tackled this subject with brokers active in this market, it became clear that the mechanics of this feature are not always well understood and when it is explained it has illuminated a whole new approach to providing recommendations to clients.
It is quite possible that even a product offering a lower interest rate will mean beneficiaries receiving less equity from the sale of the client’s home than a plan that charges a slightly higher rate but with the guaranteed inheritance feature built in.
So, rushing to provide one solution may not answer the client’s key concerns, even if it seems like the most obvious route to their desired outcome.
Lesson learned. For me at least. I passed the exam on the second time of asking, having read and re-read every question before I even attempted to scribble down my answers. It pays to RTBQ.
Stuart Wilson is marketing director at equity release provider more 2 life