Key, the UK’s leading equity release adviser, has further developed its advice framework to enhance the personalisation of advice with a focus on supporting client understanding and encouraging active management of borrowing.
Having reviewed its existing approach in preparation for Consumer Duty and taking into account modern equity release products flexibilities as well as looking to future proof in light of wider later life lending innovation, this framework takes a fresh approach to advice provision.
Affordability Assessment:
All clients who approach Key for support with their later life lending needs will undergo an affordability assessment. This, alongside an initial exploration of views and preferences, will help to determine not only what products the customer may be eligible for, including retirement interest-only (RIO) and standard residential mortgages, but also what advice route will help them achieve the most suitable outcome.
Assessing early in the process what level of repayments may be manageable can ensure customers recognise immediately the benefits of active management of any borrowing. With all later life lending products mandating or allowing some form of repayment, the choice to service the debt can open-up a wider range of options in the future and allow products to evolve alongside the needs and circumstances of customers as they move through later life.
Referrals to trusted partners across pensions/investment advice, long-term care funding and debt management will continue to ensure customers are appropriately supported whatever route they may take.
Personalisation a Priority:
The obligations of Consumer Duty place a higher bar on the whole financial services sector and the importance of advice over sales is imperative in the delivery of good customer outcomes.
The framework will also formalise Key’s long-held belief that personalisation is vital and any customer product bias coming into the advice process must be challenged to ensure that a balanced view of all alternatives is properly considered.
The new affordability tool sits alongside Key’s bespoke Adviser Portal which incorporates a dynamic fact find, product research/sourcing and suitability report templates. All advisers have been through a comprehensive training programme to ensure familiarisation with this updated approach and to embedded it into everyday working practices.
In time, Key intends to publish this approach within a Customer Charter in order to set clear expectations as to what customers should expect from the advice process.
Will Hale, CEO at Key said: “As with other advice firms, we fully reviewed our advice philosophy and processes ahead of the introduction of Consumer Duty and have made changes which are designed to align with the required transition from treating customers fairly to providing good customer outcomes.
“With the range of options currently available, there is often no one single right answer and an adviser’s recommendations need to evidence consideration of all of the potential implications and why the selected option is judged the most suitable. In a rapidly evolving later life lending sector, this makes providing the best advice complex and requires consideration of a matrix of different risks and benefits.
“With equity release products typically not requiring mandatory repayments, affordability has not always been front and centre of the advice process for firms specialising in this sector. However, with an ever more diverse profile of customers, a wider range of products, and further innovation on the horizon, we are committed to evolving our approach to keep pace with changing needs, a growing market and the heightened expectations of Consumer Duty.“
High Level Key Advice Philosophy:
The evolved advice framework builds on Key’s existing approach and fits broadly under three objectives – affordability, personalisation and supporting understanding:
Affordability:
- We’ll assess a customer’s affordability in order to determine which lending products and/or repayment options could be suitable.
- If a customer is able to sustainably commit to a mandatory repayment product we’ll recommend they explore that option first and make the necessary referral to do so where appropriate.
- Where a customer has surplus income we’ll clearly explain the benefits of using that income to make repayments against their loan. We’ll always recommend the customer makes repayments where they have the affordability to do so
- We’ll challenge customer assumptions around their options and their preferences around making repayments to ensure they understand the impact of their decisions.
Personalisation:
- Irrespective of the scope of our advice proposition, no assumptions will be made about product outcomes until we’ve explored the customer’s needs and all the options available – including approaches that do not require a lending product.
- We’ll personalise our approach and recommendation for each customer, recognising everyone’s needs and circumstances will differ.
- We’ll discuss the alternative options with the customer and assess whether these are feasible based on their needs and circumstances.
- We’ll challenge the customer to ensure they’re fully considering these options where appropriate despite any preconceptions they have when entering the advice process.
- We’ll provide a balanced view of the lending options, including equity release, and how they compare, explaining features, benefits, risks and limitations of each to support the customer in making an informed decision.
Supporting Understanding:
- We’ll fully explain the impact of compound interest on the amount borrowed. We’ll highlight the impact of adding any fees over the lifetime of the loan and the true cost of all the needs and wants being supported
- We’ll provide a recommendation that best achieves these needs and wants at the lowest cost of borrowing for the customer.
- We’ll ensure customers consider a drawdown facility where they do not have an immediate need for all of the funds requested and advise customers not to borrow more than they need.
- We’ll always operate at least a 2-stage advice process to give the customer time to consider their options, ask questions and make informed decisions. This approach will be tailored to reflect any vulnerability.
