Beware poor equity release advice


Leading equity release advisers have been accused of offering poor advice to pensioners and failing to explain the pitfalls of the schemes.

According to an undercover investigation by Which?, the majority of qualified advisers gave poor advice, and in some cases broke the rules issued by the FSA by not discussing their fees or producing a disclosure document.
Of the 22 financial advisers its mystery shoppers visited, only two cases of excellent advice were reported, while four advisers failed all tests.

Equity release schemes allow pensioners to draw income from their property while remaining in their home. A lump sum can be cashed in immediately, or under a drawndown scheme, the payment can be staggered, with smaller amounts paid out over a period of years.

In return, providers will either take a chunk of the property, or will provide a mortgage, which will accrue interest and need to be repaid when you come to sell.

Equity release has become more popular since pension pots have been squeezed, however, financial experts have expressed concern that, like payment protection insurance (PPI), some consumers are being mis-sold schemes.

Bad advice

In the worst case, a 75 year-old researcher who was looking for extra cash to pay for essential maintenance was advised to withdraw more money and use the additional funds to invest. "This is incredibly poor advice as investment returns after tax are unlikely to beat the borrowing costs of releasing more equity," the report said.

Other failings included:
  • Nine advisers gave inadequate explanations of the basic product features;
  • Ten advisers did not discuss alternative forms of borrowing such as downsizing or taking in a lodger; and
  • Nine advisers failed to explain the exit penalties, substantial in many cases, which would be incurred if the client wanted to quit the scheme early.
Which? added that the elderly should be more vigilant when consulting financial advisers and consult family members before committing to such schemes.
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